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Good morning, ladies and gentlemen. Welcome to the VersaBank second quarter fiscal 2026 financial results conference call. This morning, VersaBank issued a news release reporting its financial results for the second quarter ended April 30th, 2026. That news release, along with the bank's financial statements and MD&A and supplemental financial information are available on the bank's website in the investor relations section, as well as 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 the 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's 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.

Good morning, everyone, and thank you for joining us for today's call. With me again is our Global Chief Financial Officer, Nicolas Ospina. Before I begin, I want to remind you again this quarter that our financial results for Q2 reflect incremental non-core costs associated with our plan to realign our corporate structure to that of a standard U.S. bank framework, or what we refer to as the reorganization for short. As expected, those costs amounted to CAD 4.5 million before tax for Q2. That said, I'm very pleased to report that as announced in a separate news release this morning, we have publicly filed our S-4 registration statement for the reorg with the SEC. This has been a long process, much longer than originally anticipated, the filing, which is a major milestone, marks passage into the final stages. More on this later.

During the quarter, we also incurred a non-core cash expense of CAD 2.2 million for the write-down of intangible assets resulting from the sale of our sole physical bank branch. Finally, I will also note that we spent CAD 0.6 million in Q2 on legal costs specifically related to the commercialization of our RealBank tokenized deposits, which was not deemed to be non-core but is worth mentioning as an incremental cost. This was the bank's first discernible incremental spend associated with digital assets. One of the most attractive aspects of our range of digital asset opportunities is that any costs associated with bringing any of these to commercialization are expected to be de minimis. A small investment for what we expect will be meaningful near-term return in profitability. Now on to the quarter.

Q2 was very much a continuation of the strong performance and growth we saw in Q1 as we increasingly benefit from the operating leverage inherent in our business model. We again achieved new records for credit assets and revenue, which were up 25% and 27% year-over-year respectively. We once again saw strong sequential growth with increases of 6% and 5%. Q2 net interest margin on credit assets remained solid at 2.71%, up 12 basis points from Q2 last year. I'll remind you that NIM is typically a little stronger in Q2 due to favorable seasonality. The benefit of our operating leverage is clear in our numbers. Adjusted or core net income meaningfully outpaced growth in both credit assets and revenue at 45%.

I will add that we once again achieved these metrics with significantly higher than typical levels of liquidity at this early point in our expansion in the U.S. Growth in credit assets was again driven by continued momentum in our U.S. SRP program, which saw another CAD 150 million in new fundings alongside steady incremental growth in Canada. A reminder here is that the second quarter typically sees lower fundings than the other quarters due to some seasonality in the business, and the CAD 150 was in line with our budget.

Again, this quarter, the vast majority of our additional fundings in the U.S. were through our homegrown higher spread SRP as demand continues to exceed our expectations. With the continued ramp we expect throughout the remainder of the year, we intentionally chose not to augment the CAD 150 million of higher margin core SRP with securitized SRP to maximize the margin for the year. As per our model, the efficiency of our U.S. operations again improved sequentially, improving from 41% in Q1 to 37% in Q2, and keeping us on target for our goal by year-end to be in the low 20s, meaning CAD 0.80 of every dollar of revenue is dropping to the bottom line.

Feedback from our partners continues to confirm what we knew when we entered the U.S. market, that our SRP is a uniquely attractive funding solution for point-of-sale finance companies, reliable, efficient, and economical. That said, we are on the precipice of taking our SRP to an entirely new level through an AI-enabled tech advancement that will enable our partners to more efficiently and cost-effectively finance their loans. Instead of our partners having to accumulate, warehouse, and batch their loans over a period of time, typically as much as 30 days or more, these loans can now be funded individually as they are made. This effectively eliminates the need for our partners to warehouse multiple receivables over a period of time. That is, they can finance individual loans within just a few hours, reducing the overall financing costs and the need for warehouse financing.

I will note that as with all our tech advances, our Real-Time SRP capability further strengthens our risk mitigation through evaluation of partner loans underlying the SRP receivables on an individual basis, and of course, as the name says, in real time. We are currently engaged in a pilot for our Real-Time SRP solutions with one of our major SRP partners, Financeit, whose CEO, Casper Wong, someone we have worked with in the point-of-sale industry for years, called it a game changer. We are targeting broad rollout in the coming months. I can tell you that our other partners are chomping at the bit to get on board. I'd now like to turn the call over to Nico to review the financial results in detail. Nico?

Thanks, David. I am very excited to report another successful quarter for our bank. Before I begin, I will remind you that our full financial statements and our MD&A for the second quarter are available on our website under Investors section, as well as on SEDAR and EDGAR. All of the following numbers are reported in CAD as per our financial statements, unless otherwise noted. Starting with our balance sheet. Total assets at the end of the second quarter of fiscal 2026 grew 28% year-over-year, and 5% sequentially to a new high of over CAD 6.4 billion. Cash and securities were CAD 674 million or 10% of our total assets. That's down slightly compared to the end of Q1 2026.

I will reiterate here David's earlier 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 17.15. Our CET1 ratio was 12.3% and our leverage ratio was 7.9%, both meaningful down year-over-year and remaining comfortably above our internal targets. That year-over-year change is mainly due to putting capital to work for growth in the US SRP portfolio following our capital raise in December 2024. Our strong growth in assets, along with continued healthy net interest margin, drove total consolidated revenue to a record of CAD 38.3 million. That's up 27% year-over-year, and 5% sequentially.

Consolidated non-interest expenses, excluding the one-time costs associated with the reorganization and the non-cash expense resulting from the sale of our sole physical bank branch, were CAD 20.8 million, compared to CAD 16.6 million in Q2 last year and CAD 19 million for Q1. Including these costs, non-interest expenses for Q2 were CAD 27.5 million. As David noted, non-interest expenses for Q2 also including CAD 600,000 in legal costs related to the commercialization of RealBank tokenized deposits. As a reminder, DRT Cyber expenses are included in the consolidated non-interest expenses and total CAD 2.5 million for the quarter, more or less in line with the last year. Reported net income was CAD 7.5 million, and consolidated earnings per share was CAD 0.23.

Excluding the one-time cost mentioned previously, consolidated adjusted net income was CAD 12.4 million or CAD 0.39 per share, with adjusted net income increasing 35% year-over-year and 2% sequentially. Again, this included approximately CAD 600,000 in tokenized deposit commercialization costs. Looking at the income statement on a segmented basis, revenue for the Canadian banking operations was CAD 28.1 million, up 10% year-over-year and 2% sequentially. I will remind you that the bank's corporate expenses flow through the Canadian banking digital segment, as a result, reported net income includes those reorganization costs and the intangible asset write-off. Net income was CAD 4.1 million. That number is dampened by the CAD 4.9 million after-tax impact of the one-time cost associated with the reorganization and the non-cash expense resulting from the sale of the branch I described earlier.

Revenue for the U.S. banking operations was CAD 7.9 million, a 17% increase sequentially, primarily due to the ramp-up in the U.S. SRP. That drove a 28% increase in net income sequentially to CAD 3.6 million as we see the U.S. operating leverage take effect. Digital media revenue was CAD 749,000, with net income of CAD 351,000, driven by higher client engagements and lower operating expenses. Within DRTC, the cybersecurity service component generated revenue of CAD 1.9 million, level with Q2 of last year. Net loss was CAD 508,000 compared to net loss of CAD 652,000 last year. Our credit asset portfolio grew to a new record of just shy of CAD 5.7 billion at the end of Q2, driven again by our structured receivable program, which increased 32% year-over-year and 7% sequentially to CAD 4.7 billion. Our SRP portfolio represented 83% of our total credit asset at the end of Q2. That's level with Q1.

Our multifamily residential loan and other portfolio increased 2% year-over-year and 6% sequentially to CAD 1 billion as we continue to transition some of our higher risk-weighted to lower risk-weighted multifamily residential loans as part of the bank's strategy to capitalize on opportunities for lower risk-weighted credit assets with higher return on capital and continued growth in the 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 and our conservative underwriting and diversified lending strategy provides insulation from the particularly challenging real estate markets in Greater Toronto Area and other major centers in Canada. Turning to the income statement for our digital banking operations, net interest margin on credit assets, that is excluding cash and securities, was 2.71%.

That was 12 basis points or 5% higher on a year-over-year basis. As David noted, our Q2 net interest margin seasonally is stronger due to fewer days in the quarter. Overall net interest margin, including the impact of cash and securities and other assets, was 2.33%, an increase of four basis points year-over-year. Overall net interest margin was again somewhat dampened by our higher than typical cash balances. This still remains among the highest of the publicly traded Canadian federally licensed banks. Our provision for credit losses in Q2 continued to be de minimis as a percentage of average credit assets at three basis points. This was down from five basis points in Q1, primarily due to changes in the forward-looking information used by the bank in its credit risk models. I will now turn the call back to David for some closing remarks. David?

Thanks, Nico. First half of fiscal 2026 has unfolded very much on plan for our core digital banking operations, with additional strong progress on several other initiatives that we expect will drive meaningful incremental shareholder value. Accordingly, our very positive outlook for the remainder of 2026 remains firmly intact. We now see potential additional earnings upside this year. We have a strong momentum in credit asset growth. We remain on track to achieve our target of at least CAD 1 billion in U.S. SRP additions. Our U.S. banking operations are already generating more than 20% of our total revenue. A quick note on Canada. Our SRP continues to be resilient in the face of sluggish Canadian economy. Just last week, it was reported that Canada had slipped into a technical recession.

This resiliency is very much the result of our focus on home, HVAC, and renovation space, as well as our intentional strategy to partner with only the best point-of-sale lenders in the country. I am pleased to report that just last week, we added a new partner who is very well-known name in the consumer auto sales space. The planned rollout of our real-time funding capability in the coming months is expected to drive significant additional growth with both existing and new clients. While we had initially expected growth in our Canadian SRP of low to mid-single digits in 2026, we are now potentially looking at something meaningfully higher. In both Canada and United States, we believe that our real-time funding capabilities could capture significant share from securitization markets.

Certainly, earlier discussions we have had with partners and prospective partners in the market have been very encouraging in this regard. The second half outlook for net interest margins also remains favorable. We expect NIM to be relatively consistent with the start of this year, with some potential upside. We continue to expect core 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 CAD 10 million of our annual costs are incurred by our cybersecurity business that we are in the process of divesting. As noted earlier, we have sold our sole physical bank branch that we acquired as part of our entry into the U.S. in 2024. While the financial impact of the sale is de minimis, I will note that it will result in cost savings of approximately US dollars $900,000 or CAD 1.2 million.

On to the initiatives that we expect to drive additional value beyond the expected strong growth in our digital banking operations. As I mentioned at the outset, we have publicly filed our S-4 for the reorganization. It details our plan to realign our corporate structure to that of the standard U.S. bank framework with the creation of a U.S. domiciled holding company, Versa Bancorp, which becomes the parent of each of our Canadian and U.S. operations. The S-4 has been confidentially reviewed and remains subject to additional review by SEC prior to being declared effective by the SEC. We intend to move forward with the shareholders matters expeditiously in tandem with the other regulatory processes. As this initiative has protracted, so have the costs, and I will note here that expect to incur an additional CAD 2.5 million in costs in Q3.

We remain confident that the benefits in terms of shareholder value created by this initiative will far outweigh the investment we have made over the past year or so. At the end of the day, the cost of reorganization is an investment in the future shareholder value. Our multiple paths to commercialization of our digital asset technology are increasingly coming into focus, and they are expanding with new opportunities emerging as both the unique advantages of our VersaVault technology, combined with our status as a nationally federally licensed bank in both Canada and the United States becoming more widely recognized. We are now generating incremental revenue from both stablecoin custody services for QCAD, Canada's first regulatory compliant stablecoin.

Our customer, Stablecorp, with investors include Circle and Kraken, is highly respected in the industry and are rapidly moving their business plan forward with a listing on Kraken and announcement of the first on-chain Canadian US dollar settlement with QCAD on Circle's StableFX. We are proud that our proprietary VersaVault technology is playing a critical role here. This is really just the proverbial tip of the iceberg for our technology. The industry is moving very quickly. We are leaders in the space, and the market is increasingly recognizing the undeniable advantage of working with a nationally licensed bank. Increasingly, we are seeing new opportunities emerge on the stablecoin side of things. These are distinct from, but complementary to the multiple opportunities we have around tokenized deposits.

We have developed our technology and formulated commercial strategies in the context of the evolving regulatory environment, and as a national federally licensed bank in both the United States and Canada with market-ready technology, we are uniquely positioned to capitalize. With that, I'd like to open up the call to questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Joe Yanchunis with Raymond James. Your line is now open.

Good morning.

Good morning, Joe.

You've now been receiving the QCAD deposits under the Stablecorp relationship. Can you provide any color on the current level of deposits, how balances have trended since launch? What milestone should we watch for to gain adoption or to gauge adoption over the coming, call it six to 12 months?

Well, today I think the balances are only in the CAD 700,000, CAD 800,000 range Canadian. I think the impetus for those balances to increase substantially into the millions is a use case for the QCAD. I think most, and we press released this before, we think the most apparent use case is facilitating a seamless foreign exchange with a stablecoin in the U.S., a U.S. stablecoin versus a Canadian stablecoin. I know that's in the works. I know that's what folks are looking at, because that's a natural application for these stablecoins. Of course, we're operating as a federal bank on both sides of the border, we're keenly interested in that happening.

Okay, and then kind of sticking with the digital asset theme. There's been a lot of regulatory talk about the CLARITY Act in the U.S. now that that's left committee. How has your view changed regarding the timing of commercialization for your RealBank tokenized deposits? Can you remind us what are some of the key remaining milestones from a regulatory perspective?

Well, first of all, the GENIUS Act and CLARITY Act don't, at this point, apply to us in that they're not in place yet, and we're operating as a national bank in the U.S. That is not an impediment for us. However, it may turn out. Eventually, if it does come into play, our bank will comply. Presently we're operating it as we are always able to as a national bank. That's not an impediment at all to us launching. One of the things we were looking for was the FDIC to confirm that digital representations of deposits would indeed be insured, and they have. That's a big deal. Right now, Joe, we're actually working with partners on the rollout.

Technology's built, we're just working with some partners to be able to start pushing money through on a pilot project, and I expect, as it did in Canada, it will work wonderfully, and then we'll roll it out. No legal impediments, no impediments with respect to FDIC insurance, and technology's all built and tested in Canada. We're just working with some partners that I'm sure everybody will recognize their names when we roll it out.

I believe you're waiting on a non-objection letter from U.S. regulators. Has that come through? Is that what I'm to understand from that answer?

No. We wouldn't ask for the non-objection until we're ready to commercialize and have partners lined up on the other side. That's a step, of course. Yes, we'll ask for a non-objection when we're ready to roll it out with one of the, or a few large partners.

Okay. In that process, the remaining steps are to get the system and pilot in place with the partners, then you ask and hopefully receive a non-objection from regulators, and then you proceed with commercialization. Is that the right steps or am I missing something in between?

Yeah, if you thought of it that way. The gating item is finding suitable partners, and I think we have a few lined up. They're keen to do this with us. Once we have the suitable partners, then we'll push token amounts of money through the system and demonstrate to the regulators on the south side of the border that it all works fine, just as it did on the north side of the border when we first pushed out deposit tokens. Yeah.

Would that be different than the pilot program to test the plumbing that you announced last year? I think it was last September.

We hadn't established a U.S. partner, so we've had to sort of simulate that for the pilot project. We actually did that in Canada too, with simulated partners. We need real live investment banking firms or others that are in that business to hitch up with us, so that's when the commercialization starts. We need a distribution channel. Our modus operandi is not to go direct to the public. We always go through somebody else that already has the relationship.

Do you have a sense for how long that pilot program would need to take?

Considering we did it once before in Canada, we've done it with simulations here in the States. I wouldn't think more than a month.

Okay, perfect. One more from me here, kind of shifting gears. Given the expected continued growth of the U.S. SRP portfolio, and the recently renewed share repurchase program, how are you thinking about capital deployment from here? More specifically, do you believe your current capital levels are sufficient to fund your organic growth plans while maintaining flexibility for share repurchases? Should investors expect additional capital optimization initiatives over time? If you could just provide some color and thoughts on your capital levels, that'd be helpful.

Yeah. The capital levels that we presently have are we can achieve our budget. I think we publicly stated that we're looking for about $1 billion in additional SRP in the U.S. We have sufficient capital to do that and more. Just a little bit of a warning, it's kind of a good thing, is when we announced the real-time purchase of receivables, there's this huge amount of enthusiasm for that product. There's an avalanche of deals likely to come our way, and that could soak up our capital pretty rapidly. We're talking billions and billions could easily flow in. The idea of being able to purchase the loans and leases, or at least what we call it, invest in the cash flow derived from the loans and leases virtually real time is a tremendous breakthrough.

Those that have been content to securitization, batching, taking some time to get their money are eagerly awaiting getting their money right away. That very well could soak up our capital pretty rapidly. I hope it does, because that means that we're making a lot more money.

Okay, great. I appreciate it. I'll hop back in the queue.

Thank you, Joe. How's it doing in St. Pete, right?

Mosquito eggs have hatched.

Okay.

Your next question comes from Timothy Switzer with KBW. Your line is now open.

Hi, Tim.

Hey, good morning. Thanks for taking my question.

Go ahead, Tim.

Yeah, the first one I have is on the real-time funding capabilities you guys have added and are piloting right now in the SRP program. You've mentioned how it can help you acquire new partners who have more specialized financing needs, which I assume refers to replacing their warehouse lines. Have you guys run an analysis that shows how much money this saves them in financing costs over time, or anything like that can help us kind of get an understanding of the value proposition you guys are offering?

Yes, we have run the analysis. I can't give it to you off the top of my head. Offline, I can give you more precise figures. Generally speaking, it means that the equity that these point-of-sale companies have is probably cut into about half. The amount of equity they require to run their business and support lines of credit and warehouse facilities is probably about half. The liquidity that they need is down to some tiny fraction because they're getting their cash immediately. The reduction in liquidity and say, on average, cutting their equity in half would mean double the return on equity and then some on top of that, because they don't have all the expenses associated with warehousing receivables and commissions and accounting bills and lawyers' bills and all those things that eat into their profits.

We help them on both sides, reduce the amount of equity that they need substantially, and we trim back all these miscellaneous expenses they have with having to maintain a certain amount of liquidity to afford the batching. It's a hell of a deal. The bottom line is I don't need to be on the phone for more than, let's say, two minutes, and a point-of-sale partner gets it.

That's great. Good to hear. Are you guys able to provide a little bit more quantitative guidance in terms of the non-interest expense outlook, how that should trend over the rest of this year on a core basis if we strip out some of the reorganization costs and other things? Are we looking at sticking around the CAD 21 million level, or is it going to go up a little bit from here?

Well, Nico's online. I think, Nico, you're looking around 21 or a little less. Is it a little less you're thinking?

I'm thinking a little less. Thank you, David. We are going on a core basis of around 20, and we can give you a little bit more precise numbers offline, but less than 21.

Okay, it should move lower from Q2. What are the levers you're pulling there?

Well, we have the branch savings. We have coming up some initiatives that we have on optimization of general cost and administrative initiatives that will optimize our expenses at the end of the day. They're being put in place for the last two quarters, and we expect to see some results in Q3 and Q4.

Okay, got it.

Even though we allocate a certain amount, we call it sort of non-core expenses, there's still a lot of miscellaneous expenses associated with rolling out U.S. and this reorganization, travel expenses, hotels, all that stuff that's extra associated with the rollouts and the reorganization that don't get precisely allocated to non-core. We also, as Nico was alluding to, we also sold a Holdingford branch back to Stearns. There's a fair amount of savings there, strangely enough, even though it's only one branch. It was at least $900,000 a year on that one branch. We repositioned it back to the previous owner.

Nice. Yeah, that's some good savings. The last one for me, the provision expense has stepped down a little bit the last two quarters, especially compared to 2025. I think a lot of it was kind of driven by growth or provision for the acquired loan book. Where should we expect that to move going forward? Can it stay closer to the current level now?

Nico can fill in too, that's what I think. Normally, our provisions are very low, minuscule, in that the cash holdbacks that we take to support our SRP program are usually enough to cover off the expected loss provisions. We have somebody else's cash standing in front of losses. That's normally where we run, in just a few basis points. In Canada, we have a residual portfolio of commercial mortgages that's usually an interim construction on residential properties. As you know, the Canadian economy is not doing all that well. We have been providing extra ECL on those, although now the portfolio is getting down to quite a small level. That's probably why you're seeing it decline a bit in that even that residual portfolio seems to be well provided for and doing fairly well despite Canada's technical recession that we're encountering.

Great. That's all for me. Thank you, David and Nico.

You're very welcome.

Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Eli Rodney with Bullpen Research. Your line is now open.

Morning, guys, and congrats on the quarter.

Good morning.

On the Real-Time SRP pilot, obviously it sounds like a fantastic deal for your partners, and you're targeting rollout in the coming months. I just want to put maybe some goalposts around what exactly that means. Are you thinking this is a Q3 or Q4 commercialization, or is it more of a fiscal 2027 story?

Well, we're targeting, I'm going to be bold here, we're targeting July 1st for the rollout of the commercialization. Our partners are keenly awaiting that, of course, because it's huge savings for them. That's the pin we've got right now, July 1st. The first phase of this program is purchasing or investing in the receivables twice a day, which to our partners is good enough. It could stay like that forever. Twice a day is better than once every month. A huge breakthrough. Going forward, you'll probably see us get down to nanoseconds. I'd like to see it that we are buying them instantaneously and really helping our partners out so that they can do what they do best, i.e., credit adjudication, interfacing with their borrowers, and with wonderful iPad apps and all that stuff.

We can be their funder as a real time. Also, it lends itself to the point-of-sale partners that operate lines of credit. Yeah, July 1st is the date. You can hold me to that. I'm holding the rest of my team to that date, too.

Okay, great. You highlighted, obviously it removes the need for warehouse financing, and there's sort of billions in opportunity there. What's the magnitude or I guess the pacing of that, assuming you come out in July with this and roll it out broadly, do you expect a wave of new partner announcements to follow in pretty short order?

Well, actually, you'll see some new partners come on board because they're kind of waiting for this. Also just the existing partners. Let's just say we got 50% of their flow right now. I'd say there's no good reason why we wouldn't get 100%. Some of them run at a third of their flow. I'd say we get the lion's share. There'd be a lot of growth just due to us taking more market share than signing up new partners. Although we've already just signed a new one in Canada. We've got a bunch going on in the United States too. The real fast growth will come out of just getting more of a bite out of their business because obviously our product offering is way more attractive than batching them up in receivables and spreadsheets and mailing them in.

I'm exaggerating a little bit, but this is what people dream of. They want to make the loans. They want to provide good customer service. They want to provide economical interest rates. It's our behooves us to deliver that to our partners. I'm expecting a big chunk of market share growth, particularly in Canada.

Right. That makes sense. With the growth coming initially from growing share with your existing customers. With that said. With the $1 billion additional U.S. SRP funding target for the year, is the rollout of this real-time program sort of a crucial element of hitting that billion-dollar target, or do you feel confident in hitting that regardless?

Regardless. Yeah. We set that target prior to this becoming a reality, so this is all on top of that, and it begs a question, if indeed there is the avalanche like we're seeing. Thankfully, we designed our software to be able to share these SRPs with other banks, other community banks, other funds, and manage it for them. We designed that originally, and we actually did speak to the regulator about that some time ago, so that if we're overwhelmed with new SRP assets, we can start giving them up to others that are sitting, waiting with their catching mitts. Others that maybe have an abundance of funding and community banks throughout United States that would like a nice, clean, administered asset for them with almost no loan loss. Well, no loan loss in our histories. Very low risk, nice yield.

We're designed to do that, and we'd probably end up having to do that because the response has been overwhelmingly enthusiastic.

That's interesting. I assume if you're at capacity within your own book and then helping other banks or lenders get exposure, I'm assuming you'd take an origination fee on that and maybe some ongoing administration fee. Is that sort of-

Oh, absolutely. Yeah.

Fair to-

We manage the cash holdbacks. We manage the whole thing. This is your classic syndication, and our software was designed to be able to accommodate that. I think it's nice for diversity for a bank to diversify its funding sources, i.e., with others. It's nice to help the other guys out. A lot of these community banks throughout the U.S. have an established deposit gathering system, and some of them may be struggling to find high-quality assets to invest in, and we're standing ready to help them. It's always been our plan. In fact, in Canada, we've done that from time to time with large exposures too. I designed the software at the very beginning, in 1993, immediately to be able to support syndicating sharing.

Awesome. I guess flipping to that U.S. target. That leaves roughly CAD 650 million to hit the bill in H2. Obviously, the mix shift has been predominantly SRP versus securitization. You made a comment on the beginning of the call that.

Yes

You can kind of flex that securitization as needed, given that you're seeing a lot of demand or in pipeline for the SRP, it's just not needed at this time. Obviously, the SRP has higher margins. Through the back half of the year, is it fair to say that the sort of predominantly SRP growth in the U.S., it will continue, or will securitization be an important piece as well?

Well, I'd say we call it homegrown SRP, homegrown securitization. I would say right now, that would be predominantly what it is. The purchase securitizations are same sort of credit quality, and they come with a lower risk weighting, 20% usually, depending on the bond rating. They're good except for it looks like it'll have work cut out for us accommodating the demand that the real-time purchase program is bringing in. It may very well be that our original prediction of having, say, CAD 650 of the billion in the homegrown SRP might go higher just because of the demand.

Well, that's exciting. Looking forward to tracking that closely. Last one from me is just kind of a higher-level frame on Canada. Obviously, you mentioned some of the challenges here at home for us.

Yeah.

I guess that plays on two fronts for you. One being the lending environment. Any additional color you could give there with SRP growth and your ongoing transition to multifamily, CMHC-insured multifamily. Then also on the lit deposit side, that moved quite nicely, higher sequentially.

Yeah.

There was recent data out with insolvencies kind of around post-2008 highs. What are you seeing as far as trajectory on the lit deposit side as well?

Well, I don't want to boast about it because what it means when our insolvency deposits grow as rapidly as they are, it means bad things for Canada, and for particularly Canadian consumers having a really rough go. For us, that's why we built that program to be a counterbalance to a recessionary time, and it's doing well. It'll be record high, of course. We're sort of a leading indicator in that the more accounts we open, the empty buckets fill up. We're opening a lot of accounts now. Yeah, not good for Canada. Years ago, about three or four years ago, you have a look at my quarterlies, I thought that the GVA Vancouver housing market, Toronto housing market was too risky a place for us to participate.

We, of course, moved out of those two markets, and now there's a collapse of, some people say 40% in value, holy Toledo. That leaves consumers in a really tough spot in that they're looking at double the mortgage payment as the interest rates have gone up and their house dropped by 40%. Rock and a hard place. Thankfully, a few years back, we pulled out of that. With respect to our SRP program, which is mainly home improvement, HVAC, and insulation, trying to reduce their utility bills by more efficient furnaces and the like. That business is still clicking along. Considering Canada's in a tough spot, I would even expect that to slow right down, the new business. Market share should increase quite dramatically just because the Real-Time SRP is so attractive. It's just outstandingly attractive.

I've had industry leaders say, "This is a revolution, David." Well, it is. It is indeed a revolution. It's what point-of-sale companies have dreamed about. It's made possible by using AI. Folks, I'm sure that you here have heard a lot about AI and what it can do for banking industry. This is a real-time application of AI. You couldn't possibly assimilate that data with the humans. We have some really smart, sharp humans that's reviewed the data, but nobody can do it anywhere near as fast as our AI model. We built it ourselves, of course, about three years back. Three years back, we did it. In Canada, holy smokes, I'm not very pleased about what's going on in the GTA and GVA. Really feel sorry for people.

From our perspective, we'll just take some market share, and we'll be going probably fast than we've ever gone.

Great. Well, I'll leave it there. Thanks for taking my questions.

Well, thank you. Sorry, I ended on a sad note there, Canadians. Hopefully, there's light at the end of the tunnel. It's a rough time when your house has dropped in value dramatically and your mortgage payment's likely doubling.

Your next question comes from Joseph Yanchunis with Raymond James. Your line is now open.

Hey, guys. Thanks for letting me back in the queue here. I just have a couple wanted to just hit on. Starting with DRTC, can you provide an update on the divestor process? Where you stand discussions with potential buyers and whether you expect for a transaction to occur before September 2026?

Well, Joe, good question. Tactically, we've put it on pause, the divestor. There's things in the background that I'm not ready to publicly announce, but there was a good tactical reason to put the brakes on the sale process. KBW did a fantastic job for us. I think they lined up about 100 eager bidders, but there was something else in the background that I thought it's best if we just put the brakes on the sale process just for a while.

Okay. I was under the impression that you had to have that out of the bank before September 2026. Have you gone back to regulators to seek permission to hold onto it a little longer, or what's the process there?

Yes, we have. Certain aspects of DRTC are permissible. The one that appears not to be permissible is the penetration testing aspect that we do with the component DBG, Digital Boundary Group. The RealBank tokenized deposits and that sort of stuff with VersaVault seems to be quite permissible. Yeah, we have gone back and asked for a little extension in order to sort out these tactical things that I think benefit the entire banking industry in the U.S. in particular. I mean, we have state-of-the-art cybersecurity for small FIs and some large FIs here in Canada. We provide those services and the large retailers. There's an onslaught of cybercriminals out there. There's certain tactical things I thought maybe put a little pause on it to see what we could do on that front.

Okay, if you've received that extension, what's the new drop-dead date?

Well, we haven't heard back from them yet. I don't know, maybe on the long side, I'd say about a year.

Okay. I appreciate that. Just one more kind of housekeeping question for me. Within that $605 million of U.S. SRP assets at quarter end, what was the mix between your legacy offering and securitization? If you happen to have that handy.

Well, we had said we expected to put on about $1 billion in U.S. SRPs, and $650 million was the homegrown and about $350 million was the purchased. That was the original plan.

Got it. Okay.

Now we're thinking the CAD 650 could be a lot higher because of that demand that's flowing mainly through the advent of the real-time purchases.

Okay. I appreciate that.

A little more precise, Joe. There, we have around, for the securitized portion, around 18% of the CAD 650 that we have currently.

Okay.

We can discuss more offline.

Okay, perfect. That was the number I was looking for. Thank you.

Okay. Sorry, Joe. Thank you, Nico. It's a good thing to have your CFO online listening when the CEO is spouting off numbers top of his head. All righty.

There are no further questions.

Operator? No further questions, operator?

No.

All righty. Well, thank you very much for your interest, and look forward to talking to you next quarter. Joel, we'll hang up and I guess take some direct calls offline.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Good 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 31, 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 [Operator Instructions]. For those participating in today's call by telephone, the accompanying slide presentation is available on the bank's website. Also, today's call will be archived for replay, both by telephone and via the Internet beginning approximately 1 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.

Good morning, everyone, and 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. Also, 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. Now 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. And notably, the credit assets revenue grew 5% and 4% sequentially, clear evidence of the momentum in our business. But 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 U.S. 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 USD 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 small contribution coming from our securitized offering. Importantly, for Q1, we saw the efficiency of our U.S. operations surpassed those of our Canadian banking operations. Our U.S. 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 USD 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?

Thanks for the kind introduction, David. Glad to be here on my first call as a CFO 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 on our website under the Investors 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 $6.1 billion. Cash and securities were $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 $16.93. In terms of our capital, our CET1 ratio was 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 $36.5 million, up 31% year-over-year and 4% sequentially. Consolidated noninterest expenses, including onetime costs associated with the reorganization were $20.5 million compared with $15.7 million in Q1 last year and $23.9 million of Q4 last year. Excluding these costs, noninterest expenses for Q1 were $19 million. As a reminder, DRT Cyber expenses are included in our consolidated noninterest expenses and totaled $2.8 million for the quarter. Reported net income was $11.1 million and consolidated earnings per share was $0.35. Excluding the after-tax expenses associated with the reorganization, consolidated adjusted net income was $12.2 million or $0.38 per share, with adjusted net income increasing 49% year-over-year and 15% sequentially. Looking at the income statement on a segmentated 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. And as a result, reported net income include those reorganization costs. Net income was $8.7 million. However, that number is dampened by the $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 US 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 $2 million, level with Q1 last year, a net loss of $630,000 impacted by higher operating expenses related to the onboarding support costs for new cybersecurity offerings. Digital Meteor revenue was $528,000 with net income of $179,000, driven by higher client engagement and lower operating expenses. Our credit asset portfolio grew to a new record of $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 $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 $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 is primary business-to-business mortgages and construction loans for residential properties. We have very little exposure to commercial use properties. Now turning into our income statement for our 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. And 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 de minimis 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?

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 U.S. SRP growth is accelerating, and we're on track to hit our fiscal 2026 target of $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. And 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 noninterest 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. While we are very comfortable with where we are, there have been more work here than initially thought by our external legal counsel and auditors. So 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 cost of $4 million to $4.5 million in the second quarter. We still expect the benefits and shareholder value creation to be meaningfully outweigh the aggregate cost 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 reengaged on this opportunity. In my more than 4 decades as a banker, I've never seen the banking sector has 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 2 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 our 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 us 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 our RBTDs that we initiated last fall is proceeding well on both sides of the border, although 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. While we firmly believe that bank-issued tokenized deposits have a number of key advantage over stablecoins, stablecoins have a role to play in the financial ecosystem and 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 the 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 stablecoins in aggregate are valued at hundreds of billions of dollars. With that, I'd like to open the call to questions. Operator?

[Operator Instructions] Your first question comes from Tim Switzer of KBW.

So first one I have is on the stablecoin 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? And do you have any kind of idea or expectations in terms of the volume the coin could reach and their aspirations there?

Well, 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. And in the United States, of course, Circle or USDC has got about $70 billion on deposit with BlackRock, I understand from public information. Canada is 10% the size. So I don't know if it proportionally will get to something like that. But kind of early days. They've got the right partners. They've got the right product, and they seem to have in Canada country keen to get on with it and endorse it. So they sort of -- I think we'll wait and see, but it won't be too much longer to see.

Okay. And could you maybe provide some details in terms of how you guys plan to monetize this? And what are the various revenue streams you expect to generate through the Stablecorp partnership?

Well, for quite a while, it will just be the traditional net interest margin that we earn on the deposits. And we -- because we have no experience with the stickiness of these types of deposits, we'll keep them in highly liquid securities. So we might be earning around 50 basis points net interest margin on the deposits. So it's not super profitable, but it is incrementally profitable to the bank.

Got it. Yes, that makes sense. And has this like -- since you signed a partner, has this -- it allows you to kind of prove out the technology you have. Has this spurred more conversations at all for VersaVault and custody in Canada or the U.S.?

Yes, 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. But 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 -- the partners, the who's who in this entire industry, it is an endorsement that we clearly have state-of-the-art technology to be able to deal with it. And of course, being a national bank in the States of Schedule I bank in Canada, we're better to put your deposits with us, of course.

Yes. Yes, I get you. Okay. And then on the other products you guys have, the real bank deposit tokens, any update on, I guess, like distribution strategy, potential partners? Like have there been any conversations with the big payment providers or payment rails, credit card networks, other banks like for maybe white labeling? Can you provide an update there?

Well, I should just simply say all of the above. It's a very popular product with the other banks, particularly the community banks that are at risk of losing their deposits to the stablecoins. So we have lots of conversations with saying all of 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. And so within a day or 2, that should be in the hands of the regulators. And that's the gating item. We need the regulators to sign off on what we have in mind. And then 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. And 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 FIs. In fact, it's the safety and numbers, it's a wonderful technology. It's good for all the entire banking industry. We might want to clip a little royalty on it going through. But we are -- I think it's best for the industry that we share the technology with everybody.

Got it. That makes sense. And one last follow-up. You mentioned the community bank showing some interest. And I assume that's in the U.S. You have a lot of other competition in the United States that are probably better known to those U.S. banks rather than VersaBank. I mean, JPMorgan, Citi, some of the nonbank stablecoins, SoFi USD recently launched. Like what are the conversations? What's the value proposition you offer them on why they should maybe choose one of VersaBank's digital deposits rather than a competitor?

Well, with respect to the very large banks that are doing a good job of getting their tokenized deposits out, they -- I don't want to 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. So I mean they're looking after their own customers and they're 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 going to get a lot of help from the big guys, but they are going to get help from us because we're part of the pack. And with our discussions with the various regulatory bodies, it does appear we're ahead of the pack by quite a bit because the type of questions I'm getting would imply that they haven't heard about our techniques before. So 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.

Got you. Yes. I mean it probably helps that you're not necessarily competing directly with a lot of these community banks core businesses...

Yes, we have no intention to do that at all. I mean this is just simply -- we think we've got a great product for the banking industry. It does a way with the archaic check clearing systems. It's good for everybody. We've got a little bit of a first mover on it, and I'm sure the rest will want to catch up quickly. And if we can clip a little transaction fee from our friends and the other community banks all the better. And for the ones I'm talking to, they all expect they'll have to pay a little bit of a toll, but we're not greedy. This is -- sounds I'm being altruistic, and that's kind of odd for a banker. But to us, you got to do something for the industry. This is a great technology. It's going to work for everybody.

Next call comes from Liam Coohill of Raymond James.

This is Liam on for Joe. I appreciate all the color on the crypto side, but I'd like to flip over to the U.S. structured receivable program quickly. Could you discuss the pipeline of partners there and your expectation for the mix between legacy portfolioing and securitized offering?

Well, we started out with sort of lofty expectations. And I think most people quite rightly 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 that your product would be well received? " It's actually exceeded our expectations, which we're 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, we'll be adding to it. So with the mix, this quarter, it was about 85% of on-balance sheet securitized receivables. We had originally estimated to 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 and reliable funding source and well proven in Canada and the folks that have signed up with us here in the States seem to have all kinds of volume for us. So good 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.

No, that's great color. And quickly, I appreciate the update on the sale process of DRT Cyber. But I am curious how you think about recent concerns surrounding AI potentially disrupting the cybersecurity space.

Well, we have an AI module ourselves, and it is state-of-the-art. I mean, we did a few years back when AI started becoming more popular. From what I use AI for, I mean, it's -- I said -- went back to somebody yesterday, said it's fantastic. I think it is the way of the world, it's the way it's going to go. And I think the bad actors are going to use it just as much too. So we -- it's one of those games where you can't rest. You just got to keep getting better and better all the time. And 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. So it's a team of people and technology that anybody would be proud to have with them. But 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 -- you're implying the world has changed so rapidly and the bad guys have got the tools, too. So you've got to have a really good team on your side to make sure that your facility has got chills up all the time. It changed in a month, a month or 2. It's a sad, 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.

Yes, no kidding. It's definitely something to watch. I appreciate all that. And 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?

Well, unfortunately, we 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. So 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. And then the accounts fill up with deposits. So 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. And then in the quarters to come, it will build. I think round numbers, we're around CAD 900 million, probably get to around CAD 1 billion by the end of the year. Canada is still suffering, and there's very, very -- a lot of reasons for that. We'll keep our fingers crossed even though we make a bit of money on insolvencies. I prefer to see -- I'd be telling you a decline in insolvencies rather than an increase.

The next question comes from Andrew Scutt of ROTH Capital.

So first one for me on the U.S. program. You guys said you did -- the bulk of the originations in the quarter were through the core program. I was kind of curious how you see the mix working out as we go through the year and you kind of build towards that $1 billion target.

Well, I think you'll see an increase in the purchase securitizations in the next few quarters. And there's a fair amount of product out there that fits us and some has strategic value for us in that it's -- the securitizations are issued by our target market. So I think the first quarter might have been a bit of an anomaly with about only 15%. But then again, there is super strong demand for the traditional on-balance sheet securitization coming in too. Bottom line is I said $1 billion, it could be a lot more than $1 billion in total. It's a good product. It provides value to our clients. It's cheaper funding. It's more reliable. And 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.

Great. Well, I appreciate the detail and kind of building off the strong demand you have for the program. At what point would you kind of say the program is kind of mature enough that you can kind of bleed off some of the excess liquidity that you have on the balance sheet now to fuel the growth?

It will be sometime this year. Our treasurer amassed a fair amount of liquidity. We're earning a little bit of a spread on it. But towards the end of the year, that should dissipate. We also -- we've said it earlier, we also start entertaining other community banks that might want to participate with us. We manage the program for them and provide them with the on-balance sheet securitized product, which we've -- a lot of them have expressed interest in it. So 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 us, and this is a very low risk, pretty high-yielding product.

Great and congrats on the progress.

[Operator Instructions] Your next caller comes from Eli Rodney of Bullpen Research.

Congrats on the quarter. So sticking on the U.S. topic for now, $1 billion for 2026 in funding, $200 million as of Q1. How should we think about the pace of growth here, sort of steady quarterly build of $30 million to $40 million or more of..

Accelerated. No, it's going to accelerate as some of the partners are just signing up have just signed up. So -- and they've got some really good product. I just love the stuff they're doing in the States with this type of lending, low risk, getting -- it's kind of an altruistic to getting economical priced funding directly through to consumers to help with the purchase of homes and vehicles and such. So I'd say it's going to accelerate. It just -- it's catching on. People are saying, gee whiz, that's pretty cool, man. How do I get a piece of that? How do you start funding me, Dave? Well, let's sign here.

Yes. And it sounds like with your earlier comments on how strong the pipeline is and the potential for new partnerships being incremental to that $1 billion target. I'm curious how -- 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?

Well, it seems that both sides of the border, it's primarily coming from homeowners doing home improvement, usually in the energy savings areas, energy saving furnaces and air conditioners that and maybe some insulation roofs and such. And in the States, similarly, and also maybe -- maybe sometime in the future, you see kind of a new kind of cool product on financing homeowners. So that's primarily where it's coming from retail, homeowners improving the existing properties and maybe looking at buying new economically priced housing units.

Great. And just looking at costs associated with the reorg, 1.5% in Q1 and sort of guiding to 4% to 4.5% in Q2. I just want to frame up how we should be thinking about the back half of the year. And my baseline assumption is we're heading into 2027 on a clean slate. Is that fair?

Yes, absolutely. I mean it's heart stopping. I think I did that for a fact when I spoke to one of the partners and the accounting firms that have been charging this huge fees for all this stuff. Boy, I should be happy to see the end of this. And the lawyers aren't shy either with their fees. But we just got to plow through it, get it closed. And then you'll see our efficiency ratio really improve. In the States this quarter, I think we're around 40-odd percent. With 1$ billion, $1.3 billion, which that $1 billion new assets would do, we get down to around 25%. And it just keeps getting better because we're employing the state-of-the-art technique for processing these receivables. So there isn't much more fixed cost needed to run the machine. So we'll be posting efficiency ratios that banks can only dream of 20%, 25% lower and lower. And the idea, of course, is to pass those savings on to our partners so that they can make a bit more money, too. And then self-fulfilling profits if we can leave more on the table for our partners, they're all more keen to sign up with us because they're being more profitable, too. So it's a win-win. The more we book, the more efficient we are, the better pricing we can provide to the partners.

Right. And even with some of the sort of near-term noise and onetime costs, you're already starting to see the operating leverage in the U.S. model showing up. So maybe just to zoom out and reframe around the long-term picture, it's -- you spent over a year in the U.S. market now. Any changes to your original view on the long-term attractiveness of the market for better or for worse?

Well, it will get way, way bigger than Canada. And that's just the metrics. I mean it's 10x the population in the United States, and they may have 10x the propensity to finance at point of sale than Canadians. So 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. So -- and 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. And 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 [indiscernible]. So it's just -- the States is bigger and more efficient, and we're ideally set up with a national license to exploit it.

Absolutely. And then as you said, as it scales past the size of the Canadian book, total bank efficiency should really move along with that. So I'll be following that closely. Last one for me, just on Canada. So some of the multifamily book sequentially is down quarter-over-quarter. I know that there were some comments earlier on that just being a transition from sort of uninsured to CMHC insured. So I'm assuming it's a timing thing, but I just -- maybe I'm curious on the macro side, obviously, inventories of multiunit are building, construction slowing down. So was this a bit of a conscious effort to accelerate that transition and reduce exposure to the unsecured or uninsured.

Absolutely. In fact, if you look at my quarterly for the last few years, I'll say purposely that we're dialing down the conventional construction and that like most folks, Canada looks pretty scary for the conventional construction of multifamily residents. So we purposely emphasized the CMHC construction. And you'll see it -- I think we've talked about $1 billion in commitments. It will 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. So 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. So 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 sort of look at the tea leaves and say, "Oh, gee whiz, I think I better be backing off. " And we say something to the effect that bad loans are made in good times. So you would have seen us backing off or maybe some of the others were still pretty aggressive. So 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.

There are no further questions at this time. I will now turn the call back over to David Taylor. Please continue.

Well, thank you, Danny, and thanks, everybody, for joining us today. I look forward to speaking to you at the time of our second quarter results.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.