VersaBank

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, MD&A, and supplemental financial information are available on the bank's website in the investor relations section, as well as 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, follow 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 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, Nicholas 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 $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 S4 registration statement for the RE-ORG with the SEC. This has been a long process, much longer than originally anticipated, but 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 $2.2 million for the write-down of intangible assets resulting from the sale of our sole physical bank branch. And finally, I will also note that we spent $0.6 million in Q2 on legal costs specifically related to the commercialization of our real bank 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 opportunity is that any costs associated with bringing any of these 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. And 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 $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 $150,000 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 can potentially chose not to augment the $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 80 cents 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 techniques, 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, calls it a game-changer. We are targeting broad rollout in the coming months, and 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 CDAR and EDGAR. All of the following numbers are reported in Canadian dollars as per our financial statements, unless otherwise noted. Okay, 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 $6.4 billion. Cash and securities were $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 $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 U.S. SRP portfolio following our capital raise in December 2024. Now, our strong growth in assets along with continued healthy net interest margin dropped total consolidated revenue to a record of $38.3 million. That's up 27% year-over-year and 5% sequentially. Consolidated non-interest expenses excluding the one-time cost associated with the reorganization and the non-cash expense resulting from the sale of our sole physical bank branch were $20.8 million compared to $16.6 million in Q2 last year and $19 million for Q1. Including these costs, non-interest expenses for Q2 were $27.5 million. As David noted, Non-interest expenses for Q2 also including $600,000 in legal costs related to the commercialization of real bank tokenized deposits. As a reminder, DRT cyber expenses are included in the consolidated non-interest expenses and total $2.5 million for the quarter, more or less in line with the last year. Reported net income was $7.5 million and consolidated earnings per share was $0.23 cents. excluding the one time cost mentioned previously, consolidated adjusted net income was 12.4 million or 39 cents per share with adjusted net income increasing 35% year over year and 2% sequentially. Again, this included approximately 600,000 tokenized deposit commercialization costs. Now looking at the income statement on a segmented basis, Revenue for the Canadian banking operations was $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, and as a result, reported net income includes those reorganization costs and the intangible assets write-off. Net income was $4.1 million. However, that number is dampened by a the $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 $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 $3.6 million, as we see the U.S. operating leverage take effect. Digital Meteor revenue was $749,000, with net income of $351,000, driven by higher client engagements and lower operating expenses. Within DRTC, the cybersecurity service component generated revenue of $1.9 million, level with Q2 of last year. Net loss was $508,000 compared to net loss of $652,000 last year. Our credit asset portfolio grew to a new record of just shy of $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 $4.7 billion. Our SRP portfolio represented 83% of our total credit assets 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 $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 portfolios, 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. Now, Turning to the income statement for our digital banking operations, net interest margin on credit assets, that is, including 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 margins are seasonally 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. Finally, our provision for credit losses in Q2 continue to be the minimus 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?