VersaBank Q2 2026 Earnings Report

VersaBank EPS Results

• Actual EPS: $0.28
• Consensus EPS: $0.26
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

VersaBank Revenue Results

• Actual Revenue: $28.17 million
• Expected Revenue: $26.86 million
• Beat/Miss: Beat by +$1.32 million
• YoY Revenue Growth: N/A

VersaBank Announcement Details

• Quarter: Q2 2026
• Date: 6/3/2026
• Time: Before Market Opens
• Conference Call Date: Wednesday, June 3, 2026
• Conference Call Time: 9:00AM ET

VersaBank (NASDAQ:VBNK) is a Canadian Schedule I chartered bank that operates as a fully digital institution, offering a range of deposit and lending solutions through its proprietary technology platform. Headquartered in London, Ontario, the bank has chosen to forego a traditional branch network in favor of online and digital distribution, enabling it to serve clients across Canada and the United States with efficiency and lower overhead.

The bank’s primary business activities include the origination and securitization of commercial loans, equipment financing, residential mortgages and construction loans. On the deposit side, VersaBank provides high-interest savings accounts, guaranteed investment certificates (GICs) and business demand deposit accounts. The bank also securitizes pools of loans to institutional investors, supporting both liquidity management and balance-sheet optimization.

Central to VersaBank’s strategy is its technology arm, which develops and licenses a patented digital vault solution for secure record-keeping and transactional verification. This digital vault not only underpins the bank’s own operations but is also made available to other financial institutions, allowing for encrypted storage and rapid retrieval of critical documents without reliance on paper records.

Founded in the early 1980s and publicly traded on the Nasdaq under the ticker VBNK, VersaBank is led by President and Chief Executive Officer Thomas C. Caldwell. The bank’s leadership team focuses on innovation in digital banking, aiming to expand its product suite while maintaining a strong capital base and adhering to regulatory requirements in the markets it serves.

VersaBank Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: VersaBank reported another strong quarter, with record revenue, record credit assets, and adjusted net income rising 35% year over year. Management said the core digital banking model is showing clear operating leverage, with U.S. operations already contributing more than 20% of total revenue.
• Positive Sentiment: The company filed the S-4 for its corporate reorganization, which management described as a major milestone and one of the final steps toward creating a U.S.-domiciled holding company structure. While more SEC review remains, management believes the restructuring should create long-term shareholder value.
• Positive Sentiment: Growth in the U.S. Structured Receivable Program (SRP) remained strong, with another CAD 150 million of new fundings in the quarter and management reiterating a target of at least CAD 1 billion in additional U.S. SRP additions. The bank said demand for its higher-spread, homegrown SRP continues to exceed expectations.
• Positive Sentiment: VersaBank is piloting Real-Time SRP, an AI-enabled product that funds individual loans within hours rather than requiring warehousing and batching. Management said rollout is targeted for July 1 and could materially expand growth by improving economics for partners and potentially taking share from securitization markets.
• Neutral Sentiment: Management highlighted growing digital-asset opportunities, including RealBank tokenized deposits and stablecoin custody tied to QCAD, but acknowledged commercialization is still awaiting partner rollout and regulator non-objection in the U.S. The company also paused the DRTC divestiture process and is seeking more time from regulators, which adds some uncertainty around timing.

Presentation

[Operator]

Good morning, ladies and gentlemen. Welcome to the VersaBank second quarter fiscal 2026 financial results conference call. This morning, VersaBank issued a news release reporting its financial results for the second quarter ended April 30th, 2026. That news release, along with the bank's financial statements and MD&A and supplemental financial information are available on the bank's website in the investor relations section, as well as SEDAR+ and EDGAR. Please note that in addition to the telephone dial-in, VersaBank is webcasting this morning's conference call. The webcast is listen only. If you are listening to the webcast but wish to ask a question in the Q&A session following Mr. Taylor's presentation, please dial into the conference line, the details of which are included in this morning's news release and on the bank's website.

[Operator]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

During the quarter, we also incurred a non-core cash expense of CAD 2.2 million for the write-down of intangible assets resulting from the sale of our sole physical bank branch. Finally, I will also note that we spent CAD 0.6 million in Q2 on legal costs specifically related to the commercialization of our 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 opportunities is that any costs associated with bringing any of these to commercialization are expected to be de minimis. A small investment for what we expect will be meaningful near-term return in profitability. Now on to the quarter.

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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.

[David Taylor, President at VersaBank]

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

[Nicolas Ospina, Global CFO at VersaBank]

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

[Nicolas Ospina, Global CFO at VersaBank]

I will reiterate here David's earlier comment about this being higher than our historical levels of around 7% as a result of our entry into the United States. Book value per share increased to another record of CAD 17.15. Our CET1 ratio was 12.3% and our leverage ratio was 7.9%, both meaningful down year-over-year and remaining comfortably above our internal targets. That year-over-year change is mainly due to putting capital to work for growth in the US SRP portfolio following our capital raise in December 2024. Our strong growth in assets, along with continued healthy net interest margin, drove total consolidated revenue to a record of CAD 38.3 million. That's up 27% year-over-year, and 5% sequentially.

[Nicolas Ospina, Global CFO at VersaBank]

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

[Nicolas Ospina, Global CFO at VersaBank]

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

[Nicolas Ospina, Global CFO at VersaBank]

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

[Nicolas Ospina, Global CFO at VersaBank]

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

[Nicolas Ospina, Global CFO at VersaBank]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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?

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the 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 star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Joe Yanchunis with Raymond James. Your line is now open.

[Joseph Yanchunis, Analyst at Raymond James]

Good morning.

[David Taylor, President at VersaBank]

Good morning, Joe.

[Joseph Yanchunis, Analyst at Raymond James]

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

[David Taylor, President at VersaBank]

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

[Joseph Yanchunis, Analyst at Raymond James]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[Joseph Yanchunis, Analyst at Raymond James]

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

[David Taylor, President at VersaBank]

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

[Joseph Yanchunis, Analyst at Raymond James]

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

[David Taylor, President at VersaBank]

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

[Joseph Yanchunis, Analyst at Raymond James]

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

[David Taylor, President at VersaBank]

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

[Joseph Yanchunis, Analyst at Raymond James]

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

[David Taylor, President at VersaBank]

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

[Joseph Yanchunis, Analyst at Raymond James]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[Joseph Yanchunis, Analyst at Raymond James]

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

[David Taylor, President at VersaBank]

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

[Joseph Yanchunis, Analyst at Raymond James]

Mosquito eggs have hatched.

[David Taylor, President at VersaBank]

Okay.

[Operator]

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

[David Taylor, President at VersaBank]

Hi, Tim.

[Tim Switzer, Analyst at KBW]

Hey, good morning. Thanks for taking my question.

[David Taylor, President at VersaBank]

Go ahead, Tim.

[Tim Switzer, Analyst at KBW]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[Tim Switzer, Analyst at KBW]

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

[David Taylor, President at VersaBank]

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

[Nicolas Ospina, Global CFO at VersaBank]

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

[Tim Switzer, Analyst at KBW]

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

[Nicolas Ospina, Global CFO at VersaBank]

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

[Tim Switzer, Analyst at KBW]

Okay, got it.

[David Taylor, President at VersaBank]

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

[Tim Switzer, Analyst at KBW]

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

[David Taylor, President at VersaBank]

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

[Tim Switzer, Analyst at KBW]

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

[David Taylor, President at VersaBank]

You're very welcome.

[Operator]

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

[Eli Rodney, Analyst at Bullpen Research]

Morning, guys, and congrats on the quarter.

[David Taylor, President at VersaBank]

Good morning.

[Eli Rodney, Analyst at Bullpen Research]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[Eli Rodney, Analyst at Bullpen Research]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[Eli Rodney, Analyst at Bullpen Research]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[Eli Rodney, Analyst at Bullpen Research]

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

[David Taylor, President at VersaBank]

Oh, absolutely. Yeah.

[Eli Rodney, Analyst at Bullpen Research]

Fair to-

[David Taylor, President at VersaBank]

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

[Eli Rodney, Analyst at Bullpen Research]

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

[David Taylor, President at VersaBank]

Yes

[Eli Rodney, Analyst at Bullpen Research]

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

[David Taylor, President at VersaBank]

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

[Eli Rodney, Analyst at Bullpen Research]

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

[David Taylor, President at VersaBank]

Yeah.

[Eli Rodney, Analyst at Bullpen Research]

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

[David Taylor, President at VersaBank]

Yeah.

[Eli Rodney, Analyst at Bullpen Research]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[David Taylor, President at VersaBank]

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

[Eli Rodney, Analyst at Bullpen Research]

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

[David Taylor, President at VersaBank]

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

[Operator]

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

[Joseph Yanchunis, Analyst at Raymond James]

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

[David Taylor, President at VersaBank]

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

[Joseph Yanchunis, Analyst at Raymond James]

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

[David Taylor, President at VersaBank]

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 Bank tokenized deposits and that sort of stuff with VersaVault seems to be quite permissible. Yeah, we have gone back and asked for a little extension in order to sort out these tactical things that I think benefit the entire banking industry in the U.S. in particular. I mean, we have state-of-the-art cybersecurity for small FIs and some large FIs here in Canada. We provide those services and the large retailers. There's an onslaught of cybercriminals out there. There's certain tactical things I thought maybe put a little pause on it to see what we could do on that front.

[Joseph Yanchunis, Analyst at Raymond James]

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

[David Taylor, President at VersaBank]

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

[Joseph Yanchunis, Analyst at Raymond James]

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

[David Taylor, President at VersaBank]

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

[Joseph Yanchunis, Analyst at Raymond James]

Got it. Okay.

[David Taylor, President at VersaBank]

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

[Joseph Yanchunis, Analyst at Raymond James]

Okay. I appreciate that.

[Nicolas Ospina, Global CFO at VersaBank]

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

[Joseph Yanchunis, Analyst at Raymond James]

Okay.

[Nicolas Ospina, Global CFO at VersaBank]

We can discuss more offline.

[Joseph Yanchunis, Analyst at Raymond James]

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

[David Taylor, President at VersaBank]

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

[Operator]

There are no further questions.

[David Taylor, President at VersaBank]

Operator? No further questions, operator?

[Operator]

No.

[David Taylor, President at VersaBank]

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

[Operator]

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

Participants

Executives

• David Taylor, President
• Nicolas Ospina, Global CFO

Analysts

• Eli Rodney, Analyst at Bullpen Research
• Joseph Yanchunis, Analyst at Raymond James
• Tim Switzer, Analyst at KBW