VersaBank Q1 2026 Earnings Call - US SRP Momentum Targets CAD 1B Fundings, Driving Record Assets and Operating Leverage

Danny, Conference Call Moderator/Operator, VersaBank: Morning, ladies and gentlemen. Welcome to VersaBank’s first quarter fiscal 2026 financial results conference call. This morning, VersaBank issued a news release reporting its financial results for the first quarter ended January 31st, 2026. That news release, along with the bank’s financial statements, MD&A and supplemental financial information, are available on the bank’s website in the Investor Relations section, as well as on SEDAR+ and EDGAR. Please note that in addition to the telephone dial-in, VersaBank is webcasting this morning’s conference call. The webcast is listen only. If you are listening to the webcast but wish to ask a question in the Q&A session following Mr. Taylor’s presentation, please dial into the conference line, the details of which are included in this morning’s news release and on the bank’s website.

For those participating in today’s call by telephone, the accompanying slide presentation is available on the bank’s website. Today’s call will be archived for replay both by telephone and via the Internet beginning approximately one hour following the completion of the call. Details on how to access the replays are available in this morning’s news release. I would like to remind our listeners that the statements about future events made on this call are forward-looking in nature and are based on certain assumptions and analysis made by VersaBank management. Actual results could differ materially from our expectations due to various material risks and uncertainties associated with VersaBank’s businesses. Please refer to VersaBank’s forward-looking statement advisory in today’s presentation. I would now like to turn the call over to David Taylor, president of VersaBank. Please go ahead, Mr. Taylor.

David Taylor, President, VersaBank: Good morning, everyone, thank you for joining us for today’s call. With me for the first time is our recently appointed Global Chief Financial Officer, Nico Ospina. Nico joined us from Raymond James U.S. Investment Banking Group, where he was a member of the team that has been so supportive of our U.S. capital market activities. He knows our business and our industry well and is already having a meaningful impact on our organization. John Asma, who previously served as our CFO, will now head up our Canadian banking operations, where his many years of experience with the bank across multiple executive roles will support the continued expansion and enhanced efficiency of our Canadian banking operations. I’d like to thank John for his excellent contribution as CFO over the past couple of years.

Before I begin, I want to remind you, as I did last quarter, that our financial results for the first quarter reflect the continued, although significantly lower costs associated with our plan to realign our corporate structure to that of a standard U.S. bank framework. Those costs amount to $1.5 million before tax in Q1, which was down significantly from the fourth quarter. A quick note about some updated terminology. As part of the broader reorganization, we have changed the name of our Receivable Purchase Program to Structured Receivable Program. This is a change in label only. The program itself has not changed in any way. On to the quarter.

Q1 was a great start for fiscal 2026, unfolding very much on plan and highlighted by new records for the credit assets and revenue, which were up 23% and 31% year-over-year, respectively. Notably, the credit assets revenue grew 5% and 4% sequentially, clear evidence of a momentum in our business. Most importantly, as per the fundamental tenet of our business model, we are seeing the benefit of operating leverage really kick in. Most of this was driven by the acceleration of our US Structured Receivable Program portfolio. Finally, I will note, as I have in the last several quarters, that we achieved these metrics with significantly higher than typical levels of liquidity at the early point of our expansion in the U.S.

Looking a little closer at our Structured Receivable Program, after achieving and in fact surpassing our 2025 target for our program in the United States, we completed more than $200 million in additional fundings in Q1. Notably, the vast majority of the Q1 fundings were through our higher spread core SRP, with only a smaller contribution coming from our securitized offering. Importantly, for Q1, we saw the efficiency of our US operations surpass those of our Canadian banking operations. Our US operations have an advantage of both less expensive deposit funding and a smaller team need to manage and grow the business. With substantially all our cost structure in place, we will see meaningful increases in efficiency as the year progresses, moving into the low 20% range through the year-end.

We are well on track to achieve our target of adding at least $1 billion in fundings in fiscal 2026. That’s more than threefold increase from 2025. While we can achieve this with our existing SRP partner relationships, we are continuing to cultivate new potential partnerships to drive additional potential upside this year. I’d now like to turn the call over to Nico to review our financial results in detail. Nico?

Nico Ospina, Global Chief Financial Officer, VersaBank: Thanks for the kind introduction, David. Glad to be here on my first call as a Global CFO of VersaBank. It is certainly a very exciting time as we enter a year defined by strong growth and meaningful improvements in operating leverage. Before I begin, I will remind you that our full financial statements and MD&A for the first quarter are available in our website under the investor section, as well as on SEDAR and EDGAR. All of the following numbers are reported in Canadian dollars as per our financial statements, unless otherwise noted. Starting with the balance sheet, total assets at the end of the first quarter of fiscal 2026 grew 24% year-over-year, and 6% sequentially to a new high of over CAD 6.1 billion.

Cash and securities were at CAD 729 million, or 12% of our total assets, up slightly compared to the end of Q4 2025. I would like to mention here David’s early comment about this being higher than our historical levels of around 7% as a result of our entry into the United States. Book value per share increased to another record of CAD 16.93. In terms of our capital, our CET1 ratio was at 12.8%, and our leverage ratio was 8.2%. We both remaining above our internal targets. Our strong growth in assets drove total consolidated revenue to a record of CAD 36.5 million, up 31% year-over-year and 4% sequentially.

Consolidated non-interest expenses, including one-time costs associated with the reorganization, were CAD 20.5 million, compared with CAD 15.7 million in Q1 last year and CAD 23.9 million of Q4 last year. Excluding this cost, non-interest expenses for Q1 were CAD 19 million. As a reminder, DRT Cyber expenses are included in our consolidated non-interest expenses and total CAD 2.8 million for the quarter. Reported net income was CAD 11.1 million, and consolidated earnings per share was CAD 0.35. Excluding the after-tax expenses associated with the reorganization, consolidated adjusted net income was CAD 12.2 million or CAD 0.38 per share, with adjusted net income increasing 49% year-over-year and 15% sequentially. Looking at the income statement on a segment data basis, revenue for the Canadian banking operations was 27.6%, up 16% year-over-year and level sequentially.

I will remind you that the bank’s corporate expense flow through our Canadian Digital Banking segment, as a result, reported net income include those reorganization costs. Net income was CAD 8.7 million. However, that number is dampened by the CAD 1.1 million after-tax impact of the reorganization I described earlier. Revenue for our U.S. banking operations was $6.8 million, a 30% increase sequentially, primarily due to the ramp-up of our U.S. SRP. That drove 40% increase in sequential net income to $2.8 million, as we see the U.S. operating leverage take effect. Within DRTC, the cybersecurity component generated revenue of CAD 2 million, level with Q1 last year. A net loss of CAD 630,000 impacted by higher operating expenses related to the onboarding support costs for new cybersecurity offerings.

Digital Meteor revenue was CAD 528,000, with net income of CAD 179,000, driven by higher client engagement and lower operating expenses. Our credit asset portfolio grew to a new record of CAD 5.33 billion at the end of Q1, driven once again by our Structured Receivable Program, which increased 29% year-over-year and 9% sequentially to CAD 4.4 billion. Our SRP portfolio represented 83% of our total credit assets at the end of Q1, up from 80% at the end of Q4 2025.

Our multifamily residential loans and other portfolio decreased 1% year-over-year and 8% sequentially to CAD 0.9 billion as we transition some of our higher risk-weighted to lower risk-weighted multifamily residential loans as part of our bank’s strategy to capitalize on opportunity for low risk-weighted credit assets with higher return on capital and to continue growth in our SRP portfolio. As a reminder, our multifamily residential loans and other portfolio’s primary business-to-business mortgages and construction loans for residential properties, we have very little exposure to commercial use properties. Turning into our income statement for digital banking operations, net interest margin on credit assets, that is excluding cash and securities, was 2.64%. That is 28 basis points or 12% higher on a year-over-year basis and level sequentially.

Overall, net interest margin, including the impact of cash, securities, and other assets, was 2.25%, an increase of 17 basis points year-over-year and down slightly from fourth quarter 2025. Again, it is dampened by our higher than typical cash balances. This still remain among the highest of the publicly traded Canadian federally licensed banks. Our provision for credit losses in Q1 continued to be the meanest as a percentage of average credit assets at 5 basis points. This was down from 11 basis points from Q4 2025, primarily due to changes in the forward-looking information used by the bank in its credit models. I now would like to turn the call back to David for some closing remarks. David?

David Taylor, President, VersaBank: Thanks, Nico. The first quarter of fiscal 2026 sets us up for a very good year. In fact, what should be by far the most profitable year in our history. At the risk of overusing the term, we have strong momentum in our core digital business, and in the United States specifically, where we have significantly greater operating leverage. Importantly, all the elements that support the very positive trajectory, the strong growth that I have discussed in our last call, have not changed. We have multiple drivers of our credit asset growth. The US SRP growth is accelerating, and we’re on track to hit our fiscal 2026 target of CAD 1 billion in additional assets. We expect to continue to see decent growth in Canada and expect our growth in CMHC loan book in Canada also.

We have already seen the incremental contribution of new revenue stream generated by our CMHC allocation fees. We expect net interest margin to be relatively flat to the higher levels of last year with some upside potential. We expect non-interest expense to be relatively flat to last year with some opportunities for year-over-year cost savings. I’ll remind you that about $10 million of our annual costs last year were incurred by our cybersecurity business that we’re in the process of divesting. 2026 is also a year in which we are on track to realize additional value from 2 other initiatives. First, we are making steady progress on our reorganization to a standard U.S. bank framework that we started last year. Most of this work is happening behind the scenes, but we do expect to be able to share some noteworthy updates in the near future.

We are very comfortable with where we are, there have been more work here than initially thought by our external legal counsel and auditors. While Q1 costs for the reorg were more or less in line with the additional costs we thought we would have this year, we expect to incur an additional costs of CAD 4 million-CAD 4.5 million in the second quarter. We still expect the benefits in shareholder value creation to be meaningfully outweigh the aggregate costs of this project. Second, the divestiture process of our cybersecurity business is also steadily moving forward. It’s still our goal to have this completed by the end of the summer, hopefully earlier. Completion of the sale will provide meaningful additional regulatory capital to support our growth and obviously well more than absorbs the additional costs associated with the reorganization.

We continue to execute and deliver strong growth in our core digital banking operations. We are simultaneously moving steadily forward on our digital asset strategy. It was just a year ago that we re-engaged on this opportunity. In my more than four decades as a banker, I’ve never seen the banking sector as historically very conservative, move so quickly to adopt an emerging technology. We now have a separate investor presentation on our website specifically dedicated to our digital asset opportunities. This is also partly due to the importance and magnitude of this opportunity for us, but also due to confusion that exists around how the opportunity in this space is evolving. As a reminder, we have two parallel commercial paths. Both are based on our proprietary VersaVault technology, which we believe, due to our unique approach, is the most secure digital asset technology available today.

Proven and validated by SOC 2 Type 1 certification, considered to be the gold standard in data security. The first and largest opportunity is our proprietary Real Bank Tokenized Deposits or RBTDs. Tokenized deposits are very rapidly gaining traction as the industry increasingly recognizes the many advantages of these being an actual bank deposit, just like any other bank deposit. In effect, we are simply replacing archaic check clearing system with state-of-the-art blockchain technology. For bank customers, this means they will receive interest, and we expect, subject to confirmation by regulators, that they will enjoy the comfort of conventional deposit insurance. Announced U.S. stablecoin regulation prohibits both. For U.S. banks, it means we can use these deposits for lending, again, just like any other deposit.

Stablecoin funds must be parked with a third party and liquid assets like T-bills. The integrated U.S. and Canadian pilot programs for RBTDs that we initiated last fall is proceeding well on both sides of the border. It’s taking a little longer than I originally anticipated. The second is the extension of the deposit services we are already providing on both sides of the border as a national federally licensed bank to stablecoins. We firmly believe that bank-issued tokenized deposits have a number of key advantage over stablecoins have a role to play in the financial ecosystem, being opportunist that we are, we have a strategy here as well, providing custody services to stablecoin issuers. This is not new for us. It’s simply an extension of the custodial services we have provided to others for years.

Just a new market segment and using our VersaVault technology. Just a couple of days after the end of the quarter, we announced our first stablecoin custody customer, Stablecorp, for QCAD, Canada’s first regulatory compliant stablecoin. Stablecorp is a pioneering leader in stablecoin space, backed by an investor group who is a who’s who of the leading participants in this space, including Coinbase, Circle, DeFi Technologies, and FTP Ventures. We see their choice of VersaBank as custodian for QCAD as a massive endorsement of our technology and our experience, as well as confirmation of our belief that the best choice for stablecoin custody is a national, federally licensed, regulated bank. It’s difficult to provide any guidance on the financial impact of our relationship.

It will very much depend on the growth in the issuance of QCAD, but one, we’d only look at the U.S. market, where the leading stable coins in aggregate are valued at $ hundreds of billions. With that, I’d like to open up calls to questions. Operator.

Danny, Conference Call Moderator/Operator, VersaBank: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star key followed by the number one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star key followed by the number two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment, please, while we assemble the queue. Your first question comes from Tim Switzer of KBW. Please go ahead.

Tim Switzer, Analyst, KBW: Hey, good morning, guys. Thank you for taking my questions.

David Taylor, President, VersaBank: Good morning, Tim.

Tim Switzer, Analyst, KBW: Good morning, Tim. The first one I have is on the stable coin custody opportunity you guys have talked about. Is there any update you can provide on, I guess, the progress Stablecorp has made on launching, the coin? Do you have any kind of idea or expectations in terms of, you know, the volume the coin could reach and your aspirations there?

David Taylor, President, VersaBank: Tim, I would just say it’s imminent for the full-blown launch. We’re in the thick of it every day with working with stablecoin. It’s hard to say on the quantum of the size. Their partners are the who’s who in the industry. In the United States, of course, Circle or USDC has got about $70 billion on deposit with BlackRock, I understand from public information. You know, Canada’s 10% the size, I don’t know if it proportionately will get to something like that. Kind of early days. They’ve got the right partners, they’ve got the right product, they seem to have, in Canada, a country keen to get on with it and endorse it.

I think we’ll wait and see, but it won’t be too much longer to see.

Tim Switzer, Analyst, KBW: Okay. Could you maybe provide some details in terms of how you guys plan to monetize this and, you know, what are the various revenue streams, you expect to generate through the Stablecorp partnership?

David Taylor, President, VersaBank: Well, for quite a while it’ll just be the traditional net interest margin that we earn on the deposits. Because we have no experience with the thickness of these types of deposits, we’ll keep them in highly liquid securities. We might be earning around 50 basis points net interest margin on the deposits. You know, it’s not super profitable, but it is incrementally profitable to the bank.

Tim Switzer, Analyst, KBW: Got it. Yeah, that makes sense. You know, has this Since you signed a partner, you know, has this You know, it allows you to kind of prove out the technology you have. Has this spurred more conversations at all for your, for VersaVault and custody in Canada or the US?

David Taylor, President, VersaBank: Yeah, it’s put us on the radar screen for sure. I’ve had a lot of conversations with the players in this industry, probably prompted by that release. You know, there’s one thing to talk about it, but when you’re chosen to be the custodian by a company as well-regarded as Stablecorp with its partners, so the who’s who in this entire industry, it is an endorsement that we, you know, clearly have state-of-the-art technology to be able to deal with it. Of course, being a national bank in the States of Schedule I bank in Canada, where better to put your deposits than with us, of course.

Tim Switzer, Analyst, KBW: Yeah, I get you. Okay. Then on, you know, the other products you guys have, the Real Bank deposit tokens, you know, any update on, I guess, like, distribution strategy, potential partners? You know, like, have there been any conversations with, you know, the big payment providers or payment rails, credit card networks, other banks, you know, like, for either maybe white labeling it, you know. Can you provide an update there?

David Taylor, President, VersaBank: Well, I should just simply say all of the above. It’s a very popular product with the with the other banks, particularly the community banks that, you know, are at risk of losing their deposits to the stablecoins. We have lots of conversations with, as I was saying, all the above. Primarily, our work has been though with the regulators on both sides of the border, producing sort of a white paper framework for them to have a hard look at so they’ll understand just how it all fits together legally and mechanically. We’re just about done that. We’ve got one for the Canadian regulators, one for the U.S. regulators, really well laid out, spells it out, the legal side of it and mechanical side.

Within a day or two, that should be in the hands of the regulators. You know, that’s the gating item. You know, we need the regulators to sign off on what we have in mind. I think it’s just like all our other products. You build it, and they will come. I mean, we have all kinds of interested parties joining in with us. I have said to both sides of the border that I don’t plan on holding on to this technology for our own exclusive use. I’m happy to share it with all the rest of the F5s. In fact, it’s the safety in numbers. It’s a wonderful technology. It’s good for all the entire banking industry.

You know, we might wanna clip a little royalty on it going through, but we you know, I think it’s best for the industry that we share the technology with everybody.

Tim Switzer, Analyst, KBW: Got it. That makes sense. One last follow-up. You mentioned the community banks showing some interest. You know, I assume that’s in the U.S. You have a lot of other competition in the United States that, you know, are probably better known to those U.S. banks rather than VersaBank. You know, I mean, you have JP Morgan, Citi, some of the non-bank stable coins, you know, SoFi USD recently launched. You know, like, what are the conversations? What’s the value proposition you offer them on why they should maybe choose one of VersaBank’s, you know, digital deposits rather than a competitor’s?

David Taylor, President, VersaBank: With respect to the very large banks that are doing a good job of getting their tokenized deposits out, I don’t wanna speak for them, but historically, they haven’t been that much inclined to help these small community banks become competitive with them. Of course not. I mean, they’re looking after their own customers and doing a really good job of it. I think the community banks, which may be number, say 4,400 or so, quite rightly see that they’re not gonna get a lot of help from the big guys, but they are gonna get help from us because we’re part of the pack. With our discussions with the various regulatory bodies, it does appear we’re ahead of the pack by quite a bit.

The type of questions I’m getting would imply that they haven’t heard about our techniques before. If the others are talking about what they plan on doing, they’re not there. They’re not at the front, or else I wouldn’t be receiving the questions that I am from various regulatory bodies on both sides of the border.

Tim Switzer, Analyst, KBW: Gotcha. Yeah, I mean, you know, probably helps that you’re not necessarily competing directly, with a lot of these community banks’ core businesses.

David Taylor, President, VersaBank: No, no, we don’t. Yeah, we have no intention to do that at all. This is just simply. We think we’ve got a great product for the banking industry. It does away with the archaic check clearing systems. It’s good for everybody. We got a little bit of a first mover on it, and I’m sure the rest will wanna catch up quickly. If, you know, we can clip a little, a little transaction fee from our friends in the other community banks, all the better. From the ones I’m talking to, they all expect they’ll have to pay a little bit of a toll. You know, we’re not greedy. This is sometimes being altruistic, and that’s kind of odd for a banker. Anyways, you know, you gotta do something for the industry.

This is a great technology. It’s gonna work for everybody.

Tim Switzer, Analyst, KBW: Got it. Thanks for taking all my questions, David.

David Taylor, President, VersaBank: Thank you, Tim.

Danny, Conference Call Moderator/Operator, VersaBank: The next call comes from Liam Cohill of Raymond James. Please go ahead.

Tim Switzer, Analyst, KBW: Hey. Good morning, David. Good morning, everybody. This is Liam on for Joe.

David Taylor, President, VersaBank: Good morning.

Tim Switzer, Analyst, KBW: I was wondering, you know...

David Taylor, President, VersaBank: Hi, Liam.

Tim Switzer, Analyst, KBW: Hey, good morning. I appreciate all the color on the crypto side, but I’d like to flip over to the US Structured Receivable Program quickly.

David Taylor, President, VersaBank: Yeah.

Tim Switzer, Analyst, KBW: Could you just set the pipeline of partners there and your expectation for, you know, the mix between legacy portfolioing and let’s securitized offering?

David Taylor, President, VersaBank: Well, we started out with sort of lofty expectations, I think most people quite right. You were skeptical about what our success would be. Strangely enough, a lot of that skepticism came from Canada saying, "Gee whiz, U.S. is a huge market. Why do you think it, that, your product would be well received?" It’s actually exceeded our expectations, which were lofty to start with. We’ve got tremendous interest in our on-balance sheet securitized receivable product. As you saw by the results, it’s almost as fast as we can sign them up, so we’ll be adding to it. With the mix this quarter, it was about 85% of on-balance sheet securitized receivables.

We had originally estimated it’d be more like 60/40 still in favor of the on-balance sheet. It may move to that number a little later on, but the pipeline is very strong. It’s an economical, reliable funding source and well proven in Canada. The folks that have signed up with us here in the States seem to have all kinds of volume for us. You know, with numbers we’ve said publicly, we expect to put $1 billion on by the end of the year. It could get well over that figure from just a few partners we’ve already signed.

Liam Cohill, Analyst, Raymond James: That’s great color. Thank you so much. Quickly, I appreciate the update on the sale process of DRT Cyber. I am curious how you think about recent concerns surrounding AI potentially disrupting the cybersecurity space.

David Taylor, President, VersaBank: Well, we have an AI module ourselves, it is state-of-the-art. I mean, we did a few years back when AI started becoming more popular. You know, from what I use AI for, I mean, went back to somebody yesterday, said, "It’s fantastic." I think it is the way of the world. It’s the way it’s gonna go, I think the bad actors are gonna be using it just as much, too. You know, it’s one of those games where you can’t rest. You’ve just got to keep getting better and better all the time. We think DRT Cyber is there. It’s got a team of about 60, 70 experts in this area, some we recruited from around the world that were legendary at the time.

It’s a team of people and technology that anybody would be proud to have with them. You know, let’s just say, as we say, if you’re not secured by DRT Cyber, you’re not secured. We’re not being arrogant there. It’s just as you’re implying, the world is changing so rapidly, and the bad guys have got the tools, too. You gotta have a really good team on your side to make sure that your facility has got shields up all the time. It changes in a month or two. It’s a sad comment on humanity that this has taken place.

I think some of you folks know that in my youth I used to be a maximum security prison guard, and I thought at that time maybe 2%, 3% of the population was given to evil endeavors. Now with this, gee whiz, it’s a lot higher percentage.

Liam Cohill, Analyst, Raymond James: Yeah, no kidding.

David Taylor, President, VersaBank: Yeah.

Liam Cohill, Analyst, Raymond James: It’s definitely something to watch. I appreciate all that. Just one more for me. I noticed some of the Canadian insolvency deposits declined slightly quarter-over-quarter. Could you discuss kind of bankruptcies in Canada and expectations for those moving forward?

David Taylor, President, VersaBank: Well, unfortunately, we’re signed up maybe 1.5% more this quarter in new accounts that are there to receive the proceeds from a wind-up of an insolvency. That would mean that Canada is still sliding down into a deeper recession as a leading indicator is how many of our insolvency professionals sign up new accounts. The accounts fill up with deposits. You’ll see deposits increase unfortunately. It slid back a little because of seasonality. I guess, our insolvency professionals tend to distribute the proceeds maybe before Christmas in the quarters that come, it’ll build. I think round numbers were around CAD 900 million, probably get to around CAD 1 billion by the end of the year.

Canada’s still suffering and there’s very, very lot of reasons for that. you know, keep our fingers crossed even though we make a bit of money on insolvencies, I’d much prefer to see, I’d be telling you a decline in insolvencies rather than an increase.

Liam Cohill, Analyst, Raymond James: Yeah. Thank you so much for the color, David. I’ll step back.

David Taylor, President, VersaBank: All righty. Well, it’s good talking to you, Liam. You’re in St. Pete?

Liam Cohill, Analyst, Raymond James: Likewise.

David Taylor, President, VersaBank: Are you in St. Pete too?

Liam Cohill, Analyst, Raymond James: Yep.

David Taylor, President, VersaBank: Good for you.

Liam Cohill, Analyst, Raymond James: I am.

David Taylor, President, VersaBank: We’re enjoying some decent weather here in Florida.

Liam Cohill, Analyst, Raymond James: Oh, definitely. Yeah. It’s warmed up really nicely since a couple cold weeks back in January.

David Taylor, President, VersaBank: Indeed. I had to wear my jacket on my motorbike here the last few days. Looks like today I can go out. It’s Bike Week here in Daytona, so I can go out as a proper biker with my T-shirt on, so nice and warm. Fresh air and sunshine.

Liam Cohill, Analyst, Raymond James: Great. That’s always a fun time.

David Taylor, President, VersaBank: Indeed.

Danny, Conference Call Moderator/Operator, VersaBank: The next question comes from Andrew Scutt of Ross Capital. Please go ahead.

David Taylor, President, VersaBank: Good morning, Andrew.

Andrew Scutt, Analyst, Ross Capital: Good morning. Thank you for taking the questions. The first one for me on the US program. You guys said you did the bulk of the originations in the quarter were through the core program. I was kinda curious how you see the mix working out as we go through the year, and you kinda build towards that CAD 1 billion target?

David Taylor, President, VersaBank: Well, I think you’ll see an increase in the purchase securitizations in the next few quarters. There’s a fair amount of product out there that fits us, and some have strategic value for us in that it’s the securitizations are issued by our target market. I think the first quarter might have been a bit of anomaly with about only 15%. Again, there is super strong demand for the traditional on-balance sheet securitization coming in too. Bottom line is, I said CAD 1 billion. It could be a lot more than CAD 1 billion in total. You know, it’s a good product. It provides a value to our client site. It’s cheaper funding.

It’s more reliable and, you know, towards the end of the year, if we can, we can enhance the product with the instant purchase program that we’re working on, it should be even more popular.

Andrew Scutt, Analyst, Ross Capital: Great. Well, appreciate the detail. Kind of, building off the strong demand you have for the program, at what point would you kinda say, the program’s kinda mature enough that you can kinda bleed off some of the excess liquidity that you have on the balance sheet now to fuel the growth?

David Taylor, President, VersaBank: It’ll be sometime this year. Our treasurer amassed a fair amount of liquidity. You know, we’re earning a little bit of a spread on it. Towards the end of the year, that should dissipate. We’d also, we’ve said it earlier. We’d also start entertaining other community banks that might want to participate with us. We’d manage the program for them and provide them with the on-balance sheet securitized product, which a lot of them have expressed interest in it. That was kind of a longer range plan to provide the service to the other small community banks that may have an abundance of deposits, may not a great place to put it.

This is, you know, a very low risk, pretty high yielding product.

Andrew Scutt, Analyst, Ross Capital: Great. Appreciate you taking my questions, and congrats on the progress.

David Taylor, President, VersaBank: Look forward to catching up with you in California, Andrew. You’ll be down there, right?

Andrew Scutt, Analyst, Ross Capital: Yep. Yeah. Looking forward to it.

David Taylor, President, VersaBank: Excellent. Excellent. Thanks for the invitation. We’ll have our California outfit on. We’ll be happy to bask in the sunshine with you.

Danny, Conference Call Moderator/Operator, VersaBank: A reminder, if you wish to ask a question, please press star 1. Your next caller comes from Eli Rodney of Bullpen Research. Please go ahead.

Eli Rodney, Analyst, Bullpen Research: Morning, guys. Congrats on the quarter.

David Taylor, President, VersaBank: Oh, morning, Eli.

Eli Rodney, Analyst, Bullpen Research: Yeah, all this sunshine talk is really getting to me while I sit in the dark here and cold Toronto.

David Taylor, President, VersaBank: I’m rubbing it in, Eli. I mean, obviously, I’ve spent most of my life in the dark days in the winter in Canada.

Eli Rodney, Analyst, Bullpen Research: Just sticking on the U.S. topic for now. A $1 billion for 2026 in fundings, $200 million as of Q1. How should we think about the pace of growth here? Sort of steady quarterly build of $30 million-$40 million or more back-end loaded?

David Taylor, President, VersaBank: Accelerated. No, it’s gonna accelerate as some of the, some of the partners who are just signing up have just signed up, so... They’ve got some really good product. I just love the stuff they’re doing in the States with these, this type of lending. Low risk. You know, getting... It’s kind of altruistic. They’re getting economical priced funding directly through to consumers to help with the purchase of homes and vehicles and such. You know, I, it, I’d say it’s gonna accelerate. Just it’s catching on. People are saying, "Gee whiz, that’s pretty cool, man. How do I get, how do I get a piece of that? How do you start funding me, Dave?" Well, let’s sign here.

Eli Rodney, Analyst, Bullpen Research: Yeah. It sounds like it with your earlier comments on, you know, how strong the pipeline is and the potential for new partnerships being incremental to that, billion dollar target. I’m curious how, you know, given that there is some constraints to growth naturally, like, how do you prioritize, the pipeline? Like, what characteristics are you looking for in potential SRP partners?

David Taylor, President, VersaBank: Well, it seems that both sides of the border, it’s primarily coming from homeowners in doing home improvement, usually in the energy savings areas. You know, energy saving furnaces and air conditioners that and maybe some insulation roofs and such. In the States, similarly. Also maybe sometime in the future, you see a new kind of cool product on financing homeowners. That’s primarily where it’s coming from, retail. Homeowners improving the existing properties and maybe looking at buying new economically priced housing units.

Eli Rodney, Analyst, Bullpen Research: Great. just flipping the costs, associated with the reorg CAD one and a half in Q1 and sort of guiding to CAD four to four and a half in Q2. I just wanna frame up how we should be thinking about the back half of the year. My baseline assumption is we’re heading into 2027 on a clean slate. Is that fair?

David Taylor, President, VersaBank: Yeah, absolutely. I mean, it’s heart-stopping. I think I did that for a fact when I spoke to one of the partners in the accounting firms that have been charging us huge fees for all this stuff. Boy, sure been happy to see the end of this. The lawyers aren’t shy either with their fees. You know, we just gotta plow through it, get it closed, then you’ll see our efficiency ratio really improve. In the States, this quarter, I think we’re around 40%. With CAD 1.3 billion, which that CAD 1 billion new assets would do, we’re getting down to around 25%.

It just keeps getting better ’cause, you know, we’re employing the state-of-the-art technique for processing these receivables. There isn’t much more fixed cost needed to run the machine. We’ll be posting efficiency ratios that banks can only dream of, 20%-25%, lower and lower. You know, the idea, of course, is to pass those savings on to our partners, you know, so that they can make a bit more money too. It’s a self-fulfilling prophecy that. You know, if we can leave more on the table for our partners, they’re all more keen to sign up with us ’cause they’re being more profitable too. It’s a win-win.

The more we book, the more efficient we are, the better pricing we can provide to the partners.

Eli Rodney, Analyst, Bullpen Research: Right. even with some of the sort of, you know, near-term noise and one-time costs, you’re already starting to see the operating leverage in the U.S. model showing up. maybe just to, you know, zoom out and reframe around the long-term picture. You spent over a year in the U.S. market now. you know, any changes to your original view on the long-term attractiveness of the market, you know, for better or for worse?

David Taylor, President, VersaBank: Well, it’ll get way bigger than Canada, and that’s just the metrics. I mean, there’s 10 times the population in the United States, and they may have 10 times the propensity to finance at point of sale than Canadians. It won’t be long before we have more exposure in the United States than we have in Canada. It’s just those water finds its own level sort of thing. In the States, the efficiency is greater, lots of reasons. We’re employing our state-of-the-art software we call AMS 3.0. Also, the deposit gathering network in the States is a lot more efficient and sophisticated. We’re only paying maybe 10, 15 basis points over U.S. Treasuries.

We only have 1 or 2 people in the deposit-raising area in the States versus in Canada, we have an entire department. It’s fragmented in Canada, smaller, and we pay maybe 50 basis points over the risk-free rate, the Canada bond. It’s just, you know, the States is bigger, and more efficient, and we’re ideally set up with a national license to explode it.

Eli Rodney, Analyst, Bullpen Research: Absolutely. As you said, as it scales past the size of the Canadian book, you know, total bank efficiency should really move along with that. I’ll be following that closely. Last one for me, just on-.

David Taylor, President, VersaBank: Yep.

Eli Rodney, Analyst, Bullpen Research: Canada. Some of the multifamily book sequentially is down quarter-over-quarter.

David Taylor, President, VersaBank: Yeah.

Eli Rodney, Analyst, Bullpen Research: -some comments earlier on that just being a transition from, sort of uninsured to CMHC insured.

David Taylor, President, VersaBank: Yeah.

Eli Rodney, Analyst, Bullpen Research: assuming it’s a timing thing, but I just am. Maybe I’m curious on the. You know, on the macro side, obviously, you know, inventories of multi-unit are building, construction slowing down. Was this a bit of a conscious effort to accelerate that transition and reduce exposure to the unsecured or uninsured?

David Taylor, President, VersaBank: Absolutely. In fact, if you looked in my quarterlies for the last few years, I’ll say purposely that we’re dialing down the conventional construction and that, you know, like most folks, Canada looks pretty scary for the conventional construction of multifamily residents. We purposefully emphasize the CMHC construction. I think we’ve talked about $1 billion in commitments. It’ll hit that number. There’s some big well-heeled developers coming to see us. In fact, we just signed one recently in our backyard in London, Ontario. Those are the kind of deals we like. Buildings we can see, we can touch, and the developer is putting a lot of equity in despite it being CMHC.

We’re doing what we’ve always done. I’ve done this for maybe almost 50 years now. I’ve been through a lot of cycles. You know, you sort of look at the tea leaves and say, "Oh, gee whiz, I think I better be backing off." We say something to the effect that bad loans are made in good times. You would have seen us backing off or maybe some of the others who are still pretty aggressive. At this point, the portfolio will start to look more and more like CMHC, and our developer clients will be the who’s who in the Canadian industry.

Eli Rodney, Analyst, Bullpen Research: Got it. Thanks for answering the questions, Dave. I’ll leave you to enjoy the weather.

David Taylor, President, VersaBank: Well, thank you. Yeah, I got my Harley Breakout fired up here. It’s in the VersaBank colors, of course, so I’m actually advertising for VersaBank in the next little while.

Danny, Conference Call Moderator/Operator, VersaBank: All right. There are no further questions at this time. I will now turn the call back over to David Taylor. Please continue.

David Taylor, President, VersaBank: Thank you, Danny, thanks everybody for joining us today. I look forward to speaking to you at the time of our second quarter results. So long.

Danny, Conference Call Moderator/Operator, VersaBank: Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation. You may now disconnect.