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?

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 of the initiatives, that we expect will drive meaningful incremental shareholder value. Accordingly, our very positive outlook for the remainder of 2026 remains firmly intact. In fact, 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 $1 billion in US 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. In fact, 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 technology and renovation space, as well as our intentional strategy to partner with only the best point-of-sale lenders in the country. And I am pleased to report that just last week we added a new partner who is a 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. So 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. Moreover, in both Canada and the United States, we believe that our real-time funding capabilities could capture a 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 for last year with some opportunities for year-over-year cost savings. I'll remind you that about $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 United States 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$900,000 or Canadian $1.2 million. Now, on to the initiatives that we expect to drive additional value beyond the expected strong growth and additional banking operations. As I mentioned at the outset, we have publicly filed our S4 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, VersaBank Corp., which becomes the parent of each of our Canadian and U.S. operations. The S4 has been confidentially reviewed and remain 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 $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 becoming into focus. And they are expanding with new opportunities emerging as both the unique advantages of our versatile 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 QCAT, Canada's first regulatory compliance stablecoin. Our customer StableCorp, when 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 stable FX. We are proud that our proprietary, versatile technology is playing a critical role here. But 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 organizing the undeniable advantage of working with a nationally licensed bank. Increasingly, we are seeing new opportunities emerge on the stable coin 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. So, if you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please put the hands up before pressing any keys. One moment, please for your first question. Your first question comes from Joe Yanchunas with Raymond James. Your line is now open.

Good morning.

Good morning, Joe. So, you've now been receiving the QPAD deposits under the stable corp relationship. Can you provide any color on the current level of deposits, how balances have trained since launch? And what milestones should we watch for to gain adoption or to gauge adoption over the coming 12, 6 to 12 months?

Well, today I think the balances are only in the $700,000, $800,000 range, Canadian. I think the impetus for those balances to increase substantially, and so now it's millions, is a use case for the q cad um and i think most uh we press releases before we think the uh most apparent use case is um facilitating a seamless foreign exchange with a stable coin in the united states a u.s stable coin versus a canadian stable coin and i know that's in the works i know that's what folks are looking at, that's a natural application for these stablecoins. And, of course, we're operating as a federal bank on both sides of the border.

So, you know, we're keenly interested in that happening. Okay.

And then kind of sticking with the digital asset theme, you know, 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 real bank tokenized deposits? And 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 United States So that is not an impediment for us, however it may turn out. Eventually, if it does come into play, our bank will comply. But presently, we're operating as we were always able to as a national bank. So that's not an impediment at all to us launching. One of the things we were looking for was the FDIC to confirm the digital representations of deposits would indeed be insured, and they have. That was a big deal. So right now, Joe, we're actually working with partners on the rollout. Technology is built. We're just working with some partners to be able to start pushing money through on a pilot project and expect, if it did in Canada, it would work wonderfully, and then we'll roll it out. No legal impediments, no impediments with respect to FDIC insurance and technology is all built and tested in Canada. And we're just working with some partners that I'm sure everybody will recognize their names when we roll it out.

So I believe you were waiting on a non-objection letter from U.S. regulators. Has that come through? Is that what I'm trying 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. So that's a step, of course. And, yes, we will ask for a non-objection when we're ready to roll it out with one of the or a few large partners.

Okay. So in that process, the remaining steps are to get the system and pilot in place with the partners. Then you – ask and, you know, hopefully receive an objection from regulators, and then you proceed with commercialization. Is that the right steps, or am I missing something?

Yeah, if you thought of it that way, the gating item is finding suitable partners, and I think we have a few lined up that are keen to do this with us. So, once we have the suitable partners, then we'll push token amounts of money through the system and demonstrate to the regulators on the 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, so.

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

We hadn't established a U.S. partner, so we've had to sort of simulate that for the pilot project. And we actually do that in Canada, too, with simulated partners. But we need, like, real live investment banking firms or others that are in that business to hitchhike with us so that that's when the commercialization starts. We need a distribution channel. You know, our bonus 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?

I'm concerned we did it once before Canada. We've done it with simulations here in the States.

I wouldn't take more than a month.

Okay, perfect. And then one more for me here, kind of shifting gears. So, given the expected continued growth of the U.S. SRP portfolio, you know, in the recently renewed share repurchase program. How are you thinking about capital deployment from here? And, you know, more specifically, do you believe your current capital levels are sufficient to fund your organic growth plans while maintaining flexibility for share repurchases? Or should investors expect additional capital optimization initiatives over time? I mean, just if you could just provide some thoughts on your capital levels, that would be helpful.

Yeah, the capital levels that we presently have, we can achieve our budgets, and I think we publicly stated that we're looking for about a billion dollars in additional SRP in the United States. So we have sufficient capital to do that and more. But 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 a 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. 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 of securitization, batching, taking some time to get their money, are eagerly awaiting getting their money right away. So 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 with you. Thank you, Joe. How's it doing in St. Pierre and St. Pete's, right?

The mosquito eggs have hatched.

Okay.

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

Hi, Tim. Take my question. Go ahead, Tim, first.

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 mentioned how, you know, it can help you acquire new partners. You have, like, more specialized financing needs, which I assume refers to, you know, replacing the warehouse lines. Have you guys run an analysis that shows – you know, how much money this saves them in financing costs over time, anything like that 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 you a thought in my head there. Offline, I can give you more precise figures. But generally speaking, it means that the equity that these point-of-sale companies have is probably tied into about half So the amount of equity they require to run their business and support lines of credits and warehouse facilities is probably about half. And the liquidity that they need is down to some tiny fraction because they're getting their cash immediately. So the reduction in liquidity and, say, on average, cutting their equity in half would mean a double of 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. So 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. I mean, I don't need to – the bottom line is I don't need to be on the phone for more than, let's say, two minutes on the point-of-sale partner Gelson.

That's great. Good to hear. And then 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 you know, some of the reorganization costs and other things. Like, are we looking at thinking around the $21 million level, or is it going to go up a little bit from here?

Well, Nico's on line. 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. Thank you, David. We are going on a core basis of around $20 million. And we can give you a little bit more precise numbers offline, but less than 21.

Okay, so 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 costs. 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.

Even though we allocate certain, let me call it sort of non-core expenses, there's still a lot of miscellaneous expenses associated with rolling out in the United States, and and this reorganization, travel expenses, hotels, you know, all that stuff that's extra associated with the rollouts and the reorganization that don't get precisely allocated to non-core. You know, we also, I think it was a link to it, we also sold a holding for a branch to back to Stearns. And there's a fair amount of savings there, strangely enough, even though it's only one branch. It was at least $900,000 in the U.S. a year on that one branch. We positioned it back to the previous owner.

Nice. Yeah, that's some good savings. And then the last one for me, the provision expenses stepped down a little bit the last two quarters, especially compared to 25 and 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?

Yeah, and you can fill in, too. But, yeah, 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. So that's normally where we run it, just a few basis points. In Canada, we have a residual portfolio of commercial mortgages that is usually interim construction and residential properties. And as you know, the Canadian economy is not doing all that well. So we have been providing extra ECL on those, although now the portfolio is getting down to quite a small level. So 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.

Okay, 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 1. Your next question comes from Ellie Rodney with Bullpen Research. Your line is now open.

Good 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 your targeting rollout in the coming months. I just want to put maybe some goalposts around, you know, what exactly that means. Are you thinking this is a Q3 or Q4 commercialization, or is it more of a fiscal 27 story?

Well, we're targeting, I'm going to be bold here, we're targeting July 1st for the rollout of the commercialization. And our partners are keenly awaiting that, of course, because there's a huge savings for them. So that's the pin we've got right now, July 1st. And 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. It's better than once every month. So a huge, huge breakthrough. But going forward, you'll probably see us get down to nanoseconds. So 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, interface them with their borrowers and with wonderful iPad apps and all that stuff. And we can be their funder of real-time. Also, it lends itself to the Point of Sale partners that operate lines of credit. So, 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. And then... You know, you highlighted, you know, 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, you know, a wave of sort of new partner announcements to follow in pretty short order?

Well, actually – You'll see some new partners come on board, so they're kind of waiting for this. But 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 were only at a third of their flow. I'd say we get the lion's share. So 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 of going on in the United States too. But the real, you know, fast growth will come out of just getting more of a bite out of their business because obviously our product we're offering is way, way more attractive than batching them up in receivables and spreadsheets and mailing them in. I'm exaggerating a little bit. But, you know, this is what people dream of. You know, they want to do what they want to do. They want to make the loan stuff. They want to provide good customer service. They want to provide economical interest rates. And, you know, it's sort of who says to deliver to our partners. So I'm expecting a big chunk of market share growth. Take that into account.

Right. That makes sense, you know, with the growth coming initially from growing share with your existing customers. With that said, then, With the $1 billion additional US SRP funding target for the year, is the rollout of this real-time program sort of a crucial element of hitting that $1 billion 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 the question, Indeed, there is the outline, so it looks 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. So we designed that originally, and we actually did speak to a regulator about that some time ago, so that if we do, if we're overwhelmed with new SRP assets, we can start giving them up to others that are sitting away with their catching mitts, others that maybe have an abundance of funding and community banks throughout the United States that would like a nice, clean, asset for them with almost no loan loss, well, no loan loss in our histories, you know, very low risk, nice yield. So, we're designed to do that and we probably end up having to do that because the response has been overwhelmingly enthusiastic.

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

Oh, absolutely. Yeah, 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. Now, you know, 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 states 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 to watch exposures. I designed the software at the very beginning in 1993 immediately to be able to support syndicating sharing. Awesome.

And then... I guess flipping to that U.S. target, so that leaves roughly $650 million to hit the bill in age two. Obviously, the mixed shift has been predominantly SRP versus securitization. You made a comment on the beginning of the call that you can kind of flex that securitization as needed and given that you're seeing a lot of demand in pipeline for the SRP. It's just not needed at this time, and obviously the SRP has higher margins. So through the back half of the year, is it fair to say that the sort of predominantly SRP growth in the U.S. 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 the same sort of credit quality, and they come with a lower risk weighting, 20%, usually, depending on the bond rate. So they're good. It looks like we'll have a workout for us accommodating the demand that the real-time purchase program is bringing in. So it may very well be that our original prediction of having, say, $650 of the billion in the homegrown SRP might go higher just because of that demand.

Well, that's exciting. Looking forward to tracking that closely. Last one for me is just kind of a higher-level frame on Canada. Obviously, you mentioned some of the challenges there. you know, here at home for us. And I guess that plays on two fronts for you. One being the lending environment. So any additional color you could get there with SRP growth and your ongoing transition to multifamily, CMHC insured multifamily. And then also on the lit deposit side, I guess that's moved forward. quite nicely, higher sequentially. There was recent data with insolvencies kind of around, you know, post 2008 highs. So, you know, 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. But 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, and we're opening a lot of accounts now. So, yeah, not good for Canada. Years ago, I mean, about three or four years ago, if you have a look at my correlates, I thought that the VGA Vancouver healthy market, Toronto healthy market, was too risky a place for us to participate. So we, of course, moved out of that, those two markets. And now there's a collapse of, some people say, 40% in value. So, holy paleto, that leaves consumers in a really tough spot in that... They're working at double the mortgage payment as interest rates have gone up, and their hours dropped by 40%. Rocking 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 furnishings and the like, that business is still clicking along. But, you know, considering Canada's a tough spot, I would even expect that to slow right down the new business. But market share should increase quite dramatically just because the real-time purchase program 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... porn cell companies have dreamed about. And it's made possible by using AI. You know, folks, I'm sure that you've heard a lot about AI and what it can do for banking industry. So 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. Nobody can do it anywhere near as fast as our AI models. We built ourselves, of course, about three years back. Three years back we did it. So in Canada, holy smokes, I'm not very pleased about what's going on in the GTA and VGA. I really feel sorry for people. But from our perspective, we'll just take some market share. We'll be going probably the fastest we've ever gone.

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

Well, thank you. Thank you. Sorry, I ended on a sad note there, Canadians. You know, hopefully there's light at the end of the tunnel. But it's a rough, rough time when your house has dropped in value dramatically and your mortgage payments are likely doubling.

Your next question comes from Joe Yanchun with Raymond James. Your line is now open.

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

Well, sure, good question. And tactically, we've put it on pause, the divestiture. And the 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 we lined up about 100 eager bidders. But there was something else in the background that I –

We just put the brakes on the sale process just for a while.

Okay. And then I was under the impression that you had to have that out of the bank, you know, before September 2026. Have you gone back to regulators to seek permission to hold on to it a little longer? Or what's the problem?

Yes, we have. Yeah. 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 real deposit tokens and that sort of stuff, first of all, seems to be quite permissible. But, yeah, we have gone back and asked for a little extension in order to sort out this issue. these tactical things that I think benefit the entire banking industry in the United States in particular. I mean, we have state-of-the-art cybersecurity for small FIs, and we'll have some large FIs here in Canada. We provide those services and the large retailers. But, you know, there's an onslaught of cyber criminals out there. And, you know, there's certain tactical things I thought, Maybe a little pause on it to see what we can do on that front.

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

Oh, I 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. And then just one more kind of housekeeping question for me. You know, within that $605 million of U.S. SRP assets, a quarter end, what was the mix between your legacy offering and securitization? Do you happen to have that handy?

Well, we had said we were expected to put on about a billion in U.S. SRPs, and $650 was the homegrown, and about $350 was the purchased.

That was the original plan. Got it. Okay.

And now we're thinking the 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. A little more precise, Joe, there. We'll have around for the securitized portion. around 18% of the 650 we have currently. 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 bound off, numbers pop his head.

All right. No further questions, operator?

No.

All righty. Well, thank you very much for your interest and look forward to talking to you next quarter. So, 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 I think please disconnect your lines.