VersaBank

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 31st, 2026. That news release, along with the bank's financial statements, MDNA, and supplemental financial information are available on the bank's website in the investor relations section, as well as on Cedar Plus 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. Also, 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.

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 Espina. 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 organizations. 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, onto the quarter. 2-1 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 a momentum in our business. But most importantly, as per the fundamental tenant 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 US dollars 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 US operations surpass 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 U.S. dollars $1 billion in funding since fiscal 2026. That's more than a 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 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 would 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 CDAR and EDGAR. All of the following numbers are reporting 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 worth $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%, with both remaining above our internal targets. Our strong growth in assets dropped total consolidated revenue to a record of $36.5 million, up 31% year-over-year and 4% sequentially. Consolidated non-interest expenses, including one-time 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, non-interest expenses for Q1 were 19 million. As a reminder, DRT cyber expenses are included in our consolidated non-interest expenses and total 2.8 million for the quarter. Reported net income was 11.1 million and consolidated earnings per share was 35 cents. 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 leveled sequentially. I will remind you that the bank's corporate expense flowed through our Canadian digital banking segment, and as a result, Reported net income includes 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 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 $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 transitioned 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 portfolios, 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 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 leveled 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 4 quarter 2025. and again, is 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 Q1 continue to be diminished as a percentage of average credit assets at five basis points. This was down from 11 basis points from Q4 2025, primarily due to changes in the forward-looking information used by the banks 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 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 two 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 RE-ORG 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 four to four and a half 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 and regulatory capital to support our growth and obviously well more than absorbs the additional costs associated with 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, versatile 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, conserves to be the gold standard in data security. The first and largest opportunity is our proprietary, real bank, tokenized deposit. 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 US and Canadian pilot programs for 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 advantages over stablecoins, stablecoins have a role to play in the financial ecosystem, and being opportunists 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 QCAT, 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 need 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 up calls to questions. Operator?

Thank you, ladies and gentlemen.

We will now begin the question and answer session. Should you have a question, please press the start key followed by the number one 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 the start key followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys.

One moment, please, while we assemble the questions. Your first question comes from Tim Switzer of KBW. Please go ahead.

Hey, good morning, guys. Thank you for taking my questions. Good morning, Tim. Good morning, Tim.

So the 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? idea or expectations in terms of the volume the coin could reach and their aspirations there?

Well, Tim, I would just say it's eminent for the full-blown launch. We're in the thick of it every day 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, USTC has got about $70 billion on deposit with BlackRock, I understand, from public information. Canada's 10% the size, so I don't know if proportionally it 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 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'll just be the traditional net interest margin that we earn on the deposits. And 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, you know, it's not super profitable, but it is incrementally profitable to the banks.

Got it. Yeah, that makes sense. Um, and you know, has, has this like, 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, you know, for VersaVault and custody in Canada or the U S?

Yeah, it's put us on the radar screen for sure. Um, it's, uh, I've had a lot of conversations with the players in this industry, um, 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, 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. And of course, being a national bank in the States, a Schedule I bank in Canada, We're better to put your deposits than with us, of course.

Yeah, yeah, I get you. Okay, and 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, 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 stable coins. So we have lots of conversations with, as I was 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've just about done that. We've got one for the Canadian regulators, one for the U.S. regulators, really well laid out. spelt it out, the legal side of it and mechanical side. And so within a day or two, that should be in the hands of the regulators. And, you know, that's the gating item. You know, we need the regulators to sign off on what we have in mind. And then I think it's just like all our other projects. 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, the safety in numbers, it's a wonderful technology. It's good for the entire banking industry. We might want to clip a little royalty on it going through, but 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 banks showing some interest and, 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 Versa bank. You know, I mean, you have JP Morgan city, 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 digital deposits rather than a competitor's?

Well, with respect to the very large banks that are doing a good job of getting their tokenized deposits out, 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 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. 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.

Gotcha. Yeah. I mean, you know, probably helps that you're not necessarily competing directly, um, with a lot of these community banks, core businesses.

Um, yeah, we have no intention to do that at all. And 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'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, you know, we can clip a little, a little, uh, transaction fee, uh, From our friends in the other community banks, all the better. The ones I'm talking to, they all expect they'll have to pay a little bit of a toll. But, you know, we're not greedy. This is sometimes being altruistic, and that's kind of odd for a banker. But, you know, you've got to do something for the industry.

This is a great technology. It's going to work for everybody. Got it. Thanks for taking all my questions, David. Thank you, Tim.

The next call comes from Liam Cuhill of Raymond James. Please go ahead.

Hey, good morning, David. Good morning, everybody. This is Liam on for Joe. So I was wondering, you know, hey, good morning.

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. It turns out 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 were lofty to start with. We've got tremendous interest in our unbalanced sheet securitized receivable product. You should 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 it would 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. 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 with numbers, we've said publicly we expect to put a billion on by the end of the year. It could get well over that figure from just a few partners who've already signed.

No, that's great, Collin. Thank you so much.

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 it a few years back when AI started becoming more popular. You know, from what... I use AI for, I mean, I went back to somebody yesterday and 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 be using it just as much, too. So, 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. 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... So 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 shields up all the time. It changed in a month, a month or two. 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.

Yeah, no kidding. It's definitely something to watch. But 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're signed up maybe 1.5% more this quarter in new accounts that are there to receive the proceeds from the wind-up of it. and insolvency. So that would mean that Canada is still sliding down into a deeper recession. 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, our insolvency professionals tend to distribute the proceeds. It may be before Christmas. And then, uh, in the quarters that come, it will build. I think round numbers were around 900 million Canadian, probably get to around a billion by the end of the year. Uh, Canada is still, uh, suffering. And, um, there's very, very lot of reasons for that. Um, We'll 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.

No, yeah. Thank you so much for the call, David. I'll step back. All righty. Well, good talking to you, Liam. You're in St.

Pete's? Are you in St. Pete's, too? Good for you. We're enjoying some decent weather here in Florida.

Oh, definitely. Yeah, it's warmed up really nicely since a couple cold weeks back in January.

Indeed. I had to wear my jacket on my motorbike the last few days, but it 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.

That's always a fun time. Indeed.

Our next question comes from Andrew Scutt of Roth Capital. Please go ahead.

Good morning. Good morning. Thank you for taking the questions. So the 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. There's a fair amount of product out there that fits us and some has strategic value for us in that the securitizations are issued by our target market. So I think the first quarter might have been a bit of 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 a billion. It could be a lot more than a billion in total. It's a good product. It provides value to our clients. It's cheaper funding. It's more reliable. 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's 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'll 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've said it earlier, we'll 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 Elm Balance Sheet securitized product, which 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 it, and this is a very low-risk, pretty high-yielding product.

Great. Well, I appreciate you taking my questions, and congrats on the progress.

Look forward to catching up with you in California, Andrew. You'll be down there, right?

Yep. Yeah.

Looking forward to it. Excellent. Excellent. Thanks for the invitation. We'll have our California outfit on.

We'll be happy to bask in the sunshine with you.

As 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.

Morning, guys. Congrats on the quarter. Morning, Eli. All this sunshine talk is really getting to me while I sit in the dark here in cold Toronto.

I'm rubbing it in, Eli. I mean, obviously, I've spent most of my life in the dark days in the winter again.

So sticking on the U.S. topic for now, a billion for 2026 in funding, $200 million as of Q1. um, how should we think about the pace of growth here? Uh, sort of steady quarterly build of 30 to 40 million or, uh, more accelerated.

No, it's going to accelerate. It was, uh, some of the, some of the partners are just signing up. I've just signed up. So, uh, and they've got some really good products. I just love this stuff they're doing in the States with, um, these, this type of, of lending, um, low risk, uh, you know, getting, um, It's kind of altruistic. They're getting economical price funding directly through to consumers to help with the purchase of homes and vehicles and such. So, you know, I'd say it's going to accelerate. 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. Yeah, and 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 $1 billion 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?

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 we'll see 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 flipping a cost, associated with the reorg one and a half in q1 and sort of guiding to four to four and a half in q2 i just want to frame up how we should be thinking about the back half of the year and and my baseline assumption is is we're uh heading into 2027 on a clean slate uh is that fair yeah absolutely i mean it's it's heart-stopping i think i i think i did that for a fact when i spoke to one of the

and your partners in the accounting firms that have been charged in this huge, huge fees for all this stuff. Boy, I'm sure, I'm sure being happy to see, happy to see the end of this. And the lawyers, the lawyers aren't shy, shy either with their fees, but you know, you just, we just got to plow through it, get it closed. And then, um, and then you'll see our efficiency ratio really improved in the States. Uh, this quarter, I think we're on 40 odd percent with a billion, a billion three, which, uh, which that building new assets would do. We're getting down 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 up 20, 25% lower and lower. And 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 it's self-fulfilling prophecy that if we can leave more on the table for our partners, they're all the 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 price we can provide to the partners.

Right. And even with some of the near-term noise and one-time 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, you've 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'll get way, way bigger than Canada. And it's just, just the, um, metrics. I mean, it's 10 times the population in the United States. I mean, they may have 10 times the propensity to finance at point of sale than Canadians. Uh, so I, it won't be long before we have more, uh, more exposure in the United States than we have in Canada. Uh, it's just, just those, uh, water finds its own level sort of thing. So, um, And in the States, the efficiency is greater for lots of reasons. We're employing our state-of-the-art software. We call it AMF 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 one or two 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 to come to Canabon. So it's just, you know, the States is bigger and more efficient, and we're ideally set up with a national license to exploit it. Absolutely.

As you said, as it scales past the size of the Canadian book, total bank efficiency should really move along with that. I'll be following that closely. Last one for me, just on Canada. Some of the multifamily book is sequentially 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 maybe I'm curious on the macro side, obviously, inventories of multi-unit are building, construction slowing down. So was this a bit of a conscious effort to accelerate that transition and reduce exposure to the uninsured?

Absolutely. In fact, if you look at my quarterlies 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 residence. So we purposefully emphasize the CMHC construction. And you'll see it, I think we've talked about about a 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. So those are the kind of deals you 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 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. 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.

Got it. Thanks for answering the questions, Dave, and I'll leave you to enjoy the weather.

Well, thank you. Yep, 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 or so.

All right.

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

Please continue.

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

So long.

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