Q3 2026 VersaBank Earnings Call

Speaker #1: Good morning, ladies and gentlemen. Welcome to VersaBank's Q3 fiscal 2026 financial results conference call. This morning, VersaBank issued a news release reporting its financial results for the third quarter ended July 31, 2026.

Lawrence Chamberlain: Good morning, ladies and gentlemen. Welcome to VersaBank's Q3 fiscal 2026 financial results conference call. This morning, VersaBank issued a news release reporting its financial results for the third quarter ended 31 July 2026. That news release, along with the bank's financial statements, MD&A, and supplemental financial information, are available on the bank's website in the investor relations section, as well as on SEDAR+ and EDGAR. Please note, in addition to the telephone dial-in, VersaBank is webcasting this morning's conference call. The webcast is listen only. If you are listening to the webcast but wish to ask a question in the Q&A session following Mr. Taylor's presentation, please dial into the conference line, the details of which are included in this morning's news release and on the bank's website. For those participating in today's call by telephone, the accompanying slide presentation is available on the bank's website.

Speaker #1: 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 on SEDAR+ and EDGAR.

Speaker #1: Please note, 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.

Speaker #1: 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.

Speaker #1: Also, today's call will be archived for replay both by telephone and via the Internet, beginning approximately one hour following completion of the call. Details on how to access the replays are available in this morning's news release.

Lawrence Chamberlain: Also, today's call will be archived for replay both by telephone and via the Internet, beginning approximately 1 hour following completion of the call. Details on how to access the replays are available in this morning's news release. I would like to remind our listeners that statements about future events made on this call are forward-looking in nature and are based on certain assumptions and analysis made by VersaBank management. Actual results could differ materially from our expectations due to various material risks and uncertainties associated with VersaBank's businesses. Please refer to VersaBank's forward-looking statement advisory in today's presentation. I would now like to turn the call over to David Taylor, Founder and President of VersaBank. Please go ahead, Mr. Taylor.

Speaker #1: I would like to remind our listeners that statements about future events made on this call are forward-looking in nature, and are based on certain assumptions and analyses made by VersaBank management.

Speaker #1: 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.

Speaker #1: I would now like to turn the call over to David Taylor, Founder and President of VersaBank. Please go ahead, Mr. Taylor.

Speaker #2: Good morning, everyone, and thank you for joining us for today's call. With me again is our Global Chief Financial Officer, Nicholas Ospina, and for the first time, Lawrence Chamberlain.

David Taylor: Good morning, everyone, and thank you for joining us for today's call. With me again is our Global Chief Financial Officer, Nicolas Ospina, and for the first time, Lawrence Chamberlain, our new Global SVP, Investor and Stakeholder Relations, who joined us full-time in August after working for us on a consulting basis for the last 6 years or so. As expected, fiscal 2026 has continued to be a breakout year in terms of top-line growth. The third quarter once again saw new records for credit assets, revenue, and net interest income with a very strong year-over-year growth. This was once again driven mainly by the momentum in our Structured Receivable Program in the United States. In fact, our US operations generated nearly 25% of Q3's digital banking revenue.

Speaker #2: Our new Global SVP, Investor and Stakeholder Relations, who joined us full-time in August after working for us on a consulting basis for the last six years or so.

Speaker #2: As expected, fiscal 2026 has continued to be a breakout year in terms of top-line growth. The third quarter once again saw new records for credit assets revenue and net interest income.

Speaker #2: With very strong year-over-year growth, this was once again driven mainly by the momentum in our structured receivable program. In the United States, in fact, our U.S. operations generated nearly 25% of Q3’s digital banking revenue.

Speaker #2: But notably, we have continued to see steady growth in Canada as we continue to increase business with our existing partners and expand our market share.

David Taylor: But notably, we have continued to see steady growth in Canada as we continue to increase business with our existing partners and expand our market share. I am very pleased to report that subsequent to the quarter end, for the first time, we surpassed CAD 7 billion in total assets. In fact, as of yesterday, we were at CAD 7.2 billion. That is up nearly CAD 5 billion over the past five years for a compounded annual growth rate of more than 25%. With this year's strong growth, we are increasingly realizing the operating leverage of our cloud-based branchless business-to-business model with year-over-year increases in net income and adjusted or core net income of 53% and 27% respectively.

Speaker #2: And I am very pleased to report that, subsequent to quarter-end, for the first time we surpassed $7 billion last year. In fact, as of yesterday, we were at $7.2 billion.

Speaker #2: That's up nearly $5 billion over the past five years, for a compounded annual growth rate of more than 25%. With this year's strong growth, we are increasingly realizing the operating leverage of our cloud-based, branchless, business-to-business model, with year-over-year increases in net income and adjusted or foreign net income of 53% and 27%, respectively.

Speaker #2: I will once again note that we achieved these metrics with significantly higher-than-typical levels of liquidity at this early point of our expansion in the United States.

David Taylor: I will once again note that we achieved these metrics with significantly higher than typical levels of liquidity at this early point for expansion in the United States, although these are steadily moving back to more historic levels. That said, it was another noisy quarter in terms of costs with a number of items which total over CAD 4.6 million that are not part of our go-forward cost structure in 2027. These included non-core costs of CAD 3.1 million, which was composed mainly of an additional CAD 2.5 million in reorganization costs that we noted on our last call. There were also CAD 1.5 million in transitory core costs, that is costs that we did not adjust for, but that were specific to Q3, as well as CAD 0.8 million related to share compensation resulting from the increase in share value. Nico will go into these in more detail in a few minutes.

Speaker #2: Although these are steadily moving back to more historic levels. That said, it was another noisy quarter in terms of costs, with the number of items which total over $4.6 million that are not part of our go-forward cost structure in 2027.

Speaker #2: These included non-core costs of $3.1 million, which was composed mainly of an additional $2.5 million in reorganization costs that we noted on our last call.

Speaker #2: There were also $1.5 million in transitory core costs — that is, costs that we did not adjust for, but that were specific to Q3. As well, there was $0.8 million related to share compensation, resulting from the increase in share value.

Speaker #2: Nicholas will go into these in more detail in a few minutes. Looking ahead, as I will discuss in a little bit, we expect the broader implementation of AI throughout our organization will not only increase our efficiency, but also create significant opportunities for meaningful cost savings going forward.

David Taylor: Looking ahead, as I will discuss in a little bit, we expect the broader implementation of AI throughout our organization will not only increase our efficiency but create significant opportunities for meaningful cost savings going forward. Finally, on the Q3 results, as I have discussed in the past, our net interest margin can vary from quarter to quarter, and we saw that somewhat in the third quarter. Much of this is due to the higher than typical liquidity levels, and we therefore expect NIM to trend back to the 2.3% range going forward. Of course, we will continue to benefit from more cheaper deposits through increased activity in our insolvency professional business. In Canada, we recently saw that deposit base reach CAD 1 billion for the first time as we both expand that business and insolvencies in Canada continue to increase. More specifically, the SRP business in the United States.

Speaker #2: Finally, on the Q3 results, as I have discussed in the past, our net interest margin can vary from quarter to quarter, and we saw that somewhat in the third quarter.

Speaker #2: Much of this is due to the higher-than-typical liquidity levels, and we therefore expect NIM to trend back to the 2.3% range going forward. Of course, we will continue to benefit from more, cheaper deposits through increased activity in our insolvency professional business.

Speaker #2: In Canada, we recently saw the deposit base reach $1 billion for the first time, as we both expand that business and insolvencies in Canada continue to increase.

Speaker #2: More specifically, the SRP business in the United States continued to steadily build momentum during Q3, with increased business from our existing U.S. partners and the addition of new partners.

David Taylor: We continued to steadily build momentum during Q3 with increased business from our existing US partners and the addition of new partners. Q3 saw another CAD 220 million in new fundings with a subsequent CAD 127 million since the end of Q3. That brings us to more than CAD 720 million in new fundings year to date as of today. Q3 saw the initial contribution from our most recently added SRP partner in the United States, another wholly owned subsidiary of ECN Capital. This latest partner is expected to contribute at least CAD 300 million in additional US SRP fundings annually. But both we and our partner believe the program could grow well beyond USD 500 million per year in fundings. I will note again this quarter, the vast majority of additional fundings in the US were through our original, more profitable SRP as demand for our core solutions continues to exceed our expectations.

Speaker #2: Q3 saw another $220 million in new fundings, with a subsequent $127 million since the end of Q3. That brings us to more than $720 million in new fundings year to date, as of today.

Speaker #2: Q3 saw the initial contribution from our most recently added SRP partner in the United States, another wholly owned subsidiary of ECN Capital. This latest partner is expected to contribute at least $300 million in additional U.S. SRP fundings annually, but both we and our partner believe the program could grow well beyond $500 million per year in fundings.

Speaker #2: I will note again, this quarter the vast majority of additional fundings in the U.S. were through our original, more profitable SRP, as demand for our core solutions continues to exceed our expectations.

Speaker #2: Our growth in the United States continues to prove out the efficiency of our U.S. operations, with an efficiency ratio, excluding the non-core write-off associated with the branch sale for Q3, of 37%.

David Taylor: Our growth in the United States continues to prove out the efficiency of our US operations with an efficiency ratio excluding non-core write-off associated with the branch sale for Q3 of 37%. We continue to remain on track for our year-end goal to be in the low 20s. Clearly, as expected, SRP has rapidly taken its rightful place as a uniquely attractive alternative funding option for point-of-sale finance companies in the United States. Reliable, efficient, economical, all benefits of our proprietary technology. During the quarter, we took the value proposition of our SRP to an entirely new level with the launch of an AI-enabled real-time version of SRP, which enabled our partners to finance their loans with even more efficiency, cost-effectiveness with lower risk.

Speaker #2: And we continue to remain on track for our year-end goal to be in the low 20s. Clearly, and as expected, SRP has rapidly taken its rightful place as a uniquely attractive alternative funding option for point-of-sale finance companies in the United States.

Speaker #2: Reliable, efficient, economical—all benefits of our proprietary technology. During the quarter, we took the value proposition of our SRP to an entirely new level with the launch of an AI-enabled, real-time version of SRP, which enabled our partners to finance their loans with even more efficiency, cost-effectiveness, and lower risk.

Speaker #2: 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.

David Taylor: 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 hours, reducing the overall financing cost and the need for warehouse financing. The cost savings and lower equity requirements are significant, and it eliminates the interest rate risk that our partners are exposed to during the warehousing period. During the quarter, following a successful pilot program, one of our largest SRP partners, Financeit, became the first to implement our real-time SRP in Canada.

Speaker #2: 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 hours.

Speaker #2: Reducing the overall financing cost and the need for warehouse financing. The cost savings and lower equity requirements are significant, and it eliminates the interest rate risk that our partners are exposed to during the warehousing period.

Speaker #2: During the quarter following a successful pilot program, one of our largest SRP partners financed it and became the first to implement our real-time SRP in Canada.

Speaker #2: And I am pleased to report that earlier this week, ECN Capital, one of our first US SRP partners, became the first to implement a real-time program in the United States.

David Taylor: I am pleased to report that earlier this week, ECN Capital, one of our first US SRP partners, became the first to implement real-time program in the United States. Feedback on our real-time solution has been overwhelmingly positive, and we are seeing considerable incremental demand from both existing and prospective new partners, including in Canada, where we believe it will generate significant incremental growth to the solid performance we are achieving this year. To ensure we are fully maximizing this opportunity and doing so rapidly as possible, we are privileged to have point-of-sale financing industry veteran, Moez Kassam, rejoin VersaBank as part of our SRP team, with a particular focus on specialized large partner opportunities for our real-time SRP in the United States market. Moez has had a very busy first month and a half and has initiated discussions with numerous new prospect partners.

Speaker #2: Feedback on our real-time solution has been overwhelmingly positive, and we are seeing considerable incremental demand from both existing and prospective new partners, including in Canada, where we believe it will generate significant incremental growth to the solid performance we are achieving this year.

Speaker #2: But to ensure we are fully maximizing this opportunity, and doing so as rapidly as possible, we are privileged to have point-of-sale financing industry veteran, Mo Dennis, rejoin VersaBank as part of our SRP team.

Speaker #2: With a particular focus on specialized large partner opportunities for our real-time SRP in the United States market, Mo has had a very busy first month and a half, and has initiated discussions with numerous new prospect partners.

Speaker #2: With that, I'd now like to turn the call over to Nico to review our financial results in detail. Nico?

David Taylor: With that, I would now like to turn the call over to Nico to review our financial results in detail. Nico?

Speaker #3: Thanks, David. Before I begin, I want to remind you that our full financial statements and MD&A for the third quarter are available on our website under the investor section, as well as on SEDAR and EDGAR. All of the following numbers are reported in Canadian dollars as per our financial statements, unless otherwise noted.

Nicolas Ospina: Thanks, David. Before I begin, I will remind you that our full financial statements and MD&A for Q3 are available on our website under the investor section, as well as on SEDAR and EDGAR. All the following numbers are reported in CAD as per our financial statements, unless otherwise noted. Starting with our balance sheet, total assets at the end of Q3 of fiscal 2026 grew 26% year-over-year and 7% sequentially to a new high of just under CAD 6.9 billion. Cash and securities was CAD 624 million or 9% of total assets, down slightly compared to the end of Q2 2026. I will reiterate here David's earlier comment about this number still 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 17.45.

Speaker #3: Starting with our balance sheet, total assets at the end of the third quarter of fiscal 2026 grew 26% year over year and 7% sequentially to a new high of just under $6.9 billion.

Speaker #3: Cash and securities were $624 million, or 9% of total assets, down slightly compared to the end of Q2 2026. And I would reiterate here David's earlier comment about these numbers still being higher than our historical levels of around 7%, as a result of our entry into the United States.

Speaker #3: Book value per share increased to another record of $17.45. Our CT1 ratio was 11.5%, and our leverage ratio was 7.6%. Both are down meaningfully year-over-year, but remain comfortably above our internal targets.

Nicolas Ospina: Our CET1 ratio was 11.5%, and our leverage ratio was 7.6%, both down meaningfully year-over-year and remaining comfortably above our internal targets. The 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 drove total consolidated revenue to a record of CAD 38.8 million, up 23% year-over-year and 1% sequentially. Non-interest expenses, or NIEs, for Q3 were CAD 25.2 million. As David noted, NIEs for Q3 included CAD 3.1 million in non-core expenses, CAD 2.5 million of additional costs related to a reorganization project, and CAD 0.6 million for the write-off of capitalized software costs following the sale of our sole physical branch on 1 May of this year.

Speaker #3: The 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.

Speaker #3: Our strong growth in assets drove total consolidated revenue to a record of $38.8 million, up 23% year over year and 1% sequentially. Non-interest expenses, or NIEs, for Q3 were $25.2 million. As David noted, NIEs for Q3 included $3.1 million in non-core expenses.

Speaker #3: $2.5 million of additional costs related to the reorganization project, and $0.6 million for the write-off of capitalized software costs following the sale of our sole physical branch on May 1st of this year.

Speaker #3: Consolidated NIEs, excluding the one-time cost, were $22.1 million, compared to $17.4 million in Q3 last year and $20.8 million for Q2. As David also noted, Q3 included approximately $2.3 million pre-tax in additional transitory costs that are not part of our run-rate cost structure.

Nicolas Ospina: Consolidated NIEs, excluding the one-time cost, were CAD 22.1 million, compared to CAD 17.4 million in Q3 last year and CAD 20.8 million for Q2. As David also noted, Q3 included approximately CAD 2.3 million pre-tax in additional transitory costs that are not a part of our run rate cost structure. This was composed of CAD 0.8 million in share-based long-term incentive award, driven by the bank's strong share price performance during the quarter, as well as CAD 1.5 million in other transitory costs that were specific to a quarter and the bank does not expect to recur. As a reminder, DRTC cyber expenses are included in the consolidated NIEs and totaled CAD 2.6 million in Q3, more or less in line with last year. Reported net income was CAD 10.1 million, a year-over-year increase of 53% from CAD 6.6 million for Q3 last year.

Speaker #3: This was composed of $0.8 million in share-based long-term incentive awards, driven by the bank's strong share price performance during the quarter, as well as $1.5 million in other transitory costs that were specific to the quarter and that the bank does not expect to recur.

Speaker #3: And as a reminder, the RTC cyber expenses are included in the consolidated NIEs and totaled $2.6 million in Q3, more or less in line with last year.

Speaker #3: Reported net income was $10.1 million, a year-over-year increase of 53% from $6.6 million for the third quarter last year. Consolidated earnings per share were $0.31, compared to $0.20 last year.

Nicolas Ospina: Consolidated earnings per share was CAD 0.31 compared to CAD 0.20 last year. Excluding the CAD 3.1 million non-core NIEs I mentioned earlier, consolidated adjusted net income was CAD 12.3 million or CAD 0.38 per share, with adjusted net income increasing 27% year-over-year. Again, that number includes CAD 0.8 million pre-tax in share-based compensation resulting from our share appreciation and our transitory cost of CAD 1.5 million pre-tax. Looking at our income statement on a segmented basis, revenue for the Canadian digital banking operation was CAD 27.6 million, up 4% year-over-year. I will remind you that our bank corporate expenses flow through our Canadian banking segment and, as a result, reported net income includes those reorganizational costs. Canadian banking net income for Q3 was CAD 6.6 million. However, that number is dampened by the CAD 1.8 million after-tax impact of the one-time cost associated with the reorganization.

Speaker #3: Excluding the $3.1 million non-core NIEs I mentioned earlier, consolidated adjusted net income was $12.3 million, or $0.38 per share, with adjusted net income increasing 27% year over year.

Speaker #3: Again, that number includes $0.8 million pre-tax in share-based compensation resulting from our share appreciation, and other transitory costs of $1.5 million pre-tax. Looking at our income statement on a segmented basis, revenue for the Canadian digital banking operation was $27.6 million, up 4% year-over-year.

Speaker #3: I would remind you that our bank corporate expenses flowed to our Canadian banking segment and, as a result, reported net income includes those reorganizational costs.

Speaker #3: Canadian banking net income for Q3 was $6.6 million. However, that number is dampened by the $1.8 million after-tax impact of the one-time costs associated with the reorganization.

Speaker #3: Revenue for our U.S. banking operations was $9.3 million, up 18% sequentially and 199% year over year, primarily due to the ramp-up in the U.S. SRP.

Nicolas Ospina: Revenue for our US banking operations was CAD 9.3 million, up 18% sequentially and 199% year-over-year, primarily due to a ramp-up in the US SRP. That drove a 10% increase in net income sequentially and an 803% increase year-over-year to CAD 3.9 million, as we see the US operating leverage take effect. Q3 net income was impacted by CAD 400,000 after-tax costs related to a software write-off resulting from the sale of the branch I described earlier. Digital media net income was CAD 114,000 compared with net income of CAD 23,000 for the third quarter last year and net income of CAD 351,000 for Q2 2026. Within DRTC, the cybersecurity service component generated revenue of CAD 1.9 million with net loss of CAD 578,000, pretty much in line with last quarter.

Speaker #3: That drove a 10% increase in net income sequentially, and an 803% increase year over year, to $3.9 million, as we see the U.S. operating leverage take effect.

Speaker #3: Q3 net income was impacted by $400,000 in after-tax costs related to the software write-off resulting from the sale of the branch I described earlier. Digital media net income was $114,000, compared with net income of $23,000 for the third quarter last year, and net income of $351,000 for the second quarter of 2026.

Speaker #3: Within the RTC, the cybersecurity service component generated revenue of $1.9 million, with a net loss of $578,000, pretty much in line with last quarter. Our credit asset portfolio grew to a new record, just shy of $6.2 billion at the end of Q3, driven once again by our structured receivable program, which increased 40% year over year and 11% sequentially to $5.2 billion.

Nicolas Ospina: Our credit asset portfolio grew a new record just shy of CAD 6.2 billion at the end of Q3, driven once again by our Structured Receivable Program, which increased 40% year-over-year and 11% sequentially to CAD 5.2 billion. Our SRP portfolio represented 85% of our total credit assets at the end of Q3, up from 82% in Q2. Our multifamily residential loans and other portfolio decreased 10% year-over-year and 5% sequentially to CAD 934 million, as we continue to strategically transition some of our higher yield, higher risk-weighted uninsured loans to lower yield, lower risk-weighted insured loans. As a reminder, our MRO portfolio is primary business-to-business mortgages and construction loans for residential properties. We have almost no exposure to commercial use properties. Now turning to the income statement for our digital banking operations, net interest margin on credit assets, that is excluding cash and securities, was 2.44%.

Speaker #3: Our SRP portfolio represented 85% of our total credit assets at the end of Q2. Our multifamily residential loans and other portfolio decreased 10% year over year and 5% sequentially to $934 million, as we continued to strategically transition some of our higher-yield, higher risk-weighted uninsured loans to lower-yield, lower risk-weighted insured loans. As a reminder, our ENRO portfolio is primarily business-to-business mortgages and construction loans for residential properties.

Speaker #3: We have almost no exposure to commercial-use properties. Now, turning to the income statement for our digital banking operations, net interest margin on credit assets—that is, excluding cash and securities—was 2.44%.

Speaker #3: That represented a decrease of 11 basis points year over year and 27 basis points sequentially. Although I would remind you that our Q2 NIM is typically the highest of the year due to normal seasonality, the decrease in NIM reflects higher than typical GIC term deposit rates relative to Government of Canada bond yields.

Nicolas Ospina: That represented a decrease of 11 basis points year-over-year and 27 basis points sequentially. Although I will remind you that our Q2 NIM is typically the highest of the year due to normal seasonality. The increase in NIM reflect higher than typical GIC term deposit rates relative to Government of Canada bond yields. The replacement of retail deposit with broker deposit resulting from the sale of the bank-only physical branch in the US, as well as our decision to maintain greater liquidity amidst a challenging Canadian economy. It also reflects lower credit asset yields in Canada due to a shift in our credit asset mix, resulting from the continued growth in our SRP portfolio, as well as our strategic shift in our MRO loans I just mentioned.

Speaker #3: The replacement of retail deposits with broker deposits resulting from the sale of the bank's only physical branch in the US, as well as our decision to maintain greater liquidity amidst a challenging Canadian economy.

Speaker #3: It also reflects lower credit asset yields in Canada due to a shift in our credit asset mix, resulting from the continued growth in our SRP portfolio, as well as our strategic shift in our ENRO loans I just mentioned.

Speaker #3: Overall NIM, including the impact of cash, securities, and other assets, was 2.19%—a decrease of 6 basis points year over year, and 14 basis points sequentially, for the same reason I noted above.

Nicolas Ospina: Overall NIM, including the impact of cash, securities, and other assets, was 2.19%, a decrease of six basis points year-over-year and 14 basis points sequentially for the same reason I noted above. Our NIM still remains amongst the highest of the publicly traded Canadian federally licensed banks. Finally, our provision for credit losses in Q3 continued to be de minimis as a percentage of our trade assets, and in fact, was -0.02%, meaning we had a recovery of credit losses during the quarter. This compares to a +0.03% from Q2, with the recovery primarily due to a sale of the branch assets to Stearns and updates in the forward-looking information used by the bank in its credit risk models. I would now like to turn the call back to David for some closing remarks. David?

Speaker #3: Our NIM still remains amongst the highest of the publicly traded Canadian federally licensed banks. Finally, our provision for credit losses in Q3 continued to be de minimis, as a percentage of average credit assets.

Speaker #3: In fact, it was negative at 0.02%, meaning we had a recovery of credit losses during the quarter. This compares to a positive 0.03% from Q2, with the recovery primarily due to the sale of branch assets to externs and updates in the forward-looking information used by the bank in its credit risk models.

Speaker #3: I will now turn the call back to David for some closing remarks. David?

Speaker #1: Thanks, Nico. As I noted earlier, fiscal 2026 has been a breakout year in terms of top-line growth, which is expected to further accelerate next year, based on both the continued expansion of our SRP in the United States as well as this year's introduction of our revolutionary real-time SRP.

David Taylor: Thanks, Nico. As I noted earlier, fiscal 2026 has been a breakout year in terms of top-line growth, which is expected to further accelerate next year based on both the continued expansion of our SRP in the United States, as well as this year's introduction of our revolutionary real-time SRP. Fiscal 2027, however, will be the year when the true power of our model in terms of both growth and operating leverage comes into focus for our investors. In fact, we are seeing so much near-term demand for our core SRP that during Q3, we made the decision to, at least in the short term, limit the amount of fundings through our lower spread purchased securitized SRP. It is simply a more efficient and more profitable use of capital.

Speaker #1: Fiscal 2027, however, will be the year when the true power of our model, in terms of both growth and operating leverage, comes into focus for our investors.

Speaker #1: In fact, we are seeing so much near-term demand for our core SRP that during the third quarter we made the decision to, at least in the short term, limit the amount of fundings through our lower spread purchased securitized SRP.

Speaker #1: It's simply a more efficient and more profitable use of capital. You'll recall that on the fourth quarter call last year, we estimated that fiscal 2026 SRP fundings in the United States would be composed of roughly 60% of our profitable core SRP, and 40% would be of our lower-spread, purchased securitized SRP.

David Taylor: You will recall that on the Q4 call last year, we estimated that fiscal 2026 SRP fundings in the United States would be composed of roughly 60% of our profitable core SRP and 40% would be of our lower spread purchased securitized SRP. As of today, that ratio stands at 90% core SRP and just 10% securitized SRP. That translates to around CAD 650 million in core SRP year to date, with well in excess of the CAD 600 million represented by our 60% of our target CAD 1 billion. As a result of limiting our purchased securitized SRP, we now anticipate that we will reach our CAD 1 billion target of additional fundings since October of last year, sometime before the calendar year end. This positions us very well for our new US SRP target, at least USD 3 billion in additional fundings in the United States in fiscal 2027.

Speaker #1: As of today, that ratio stands at 90% core SRP and just 10% securitized SRP. That translates to around $650 million in core SRP year-to-date, well in excess of the $600 million represented by 60% of our target of $1 billion.

Speaker #1: As a result of limiting our purchased securitized SRP, we now anticipate that we will reach our $1 billion target of additional fundings since October of last year sometime before the calendar year-end.

Speaker #1: This positions us very well for our new US SRP target—at least $3 billion in additional funding in the United States in fiscal 2027.

Speaker #1: That's the equivalent of more than $4 billion Canadian dollars, and the loan represents 60% growth in our credit asset portfolio. Two important points here.

David Taylor: That is the equivalent of more than CAD 4 billion, and alone represents 60% growth in our credit asset portfolio. Two important points here. One, we believe there is significant potential upside to our target of USD 3 billion in additional US fundings. The demand there, especially with the addition of our real-time enhancement. Two, we believe our real-time enhancement will accelerate growth in Canada through both additional business with our existing partners and the addition of new partners. In fact, we believe that the growth in our Canadian operations will continue to lead the Canadian banking industry and significantly outpace growth this year. The operating leverage benefits of this growth are enormous, of course. The other side of the operating leverage equation is cost. Like Q3, fiscal 2026 on whole has been a noisy year in this respect.

Speaker #1: One, we believe there is significant potential upside to our target of $3 billion in additional U.S. fundings. The demand is there, especially with the addition of our real-time enhancement.

Speaker #1: And two, we believe our real-time enhancement will accelerate growth in Canada through both additional business with existing partners, and the addition of new partners.

Speaker #1: In fact, we believe that the growth in our Canadian operations will continue to lead the Canadian banking industry and significantly outpace growth this year.

Speaker #1: The operating leverage benefits of this growth are enormous. Of course, the other side of the operating leverage equation is cost. Like Q3, fiscal 2026 on hold has been a noisy year in this respect.

Speaker #1: Not only have we had costs associated with the reorganization, as I noted earlier, we have incurred significant costs during the transition that we do not expect to repeat going forward.

David Taylor: Not only have we had costs associated with the reorganization, as I noted earlier, we have incurred significant costs during the transition that we do not expect to repeat going forward. Even with this expected growth at most, we think our core non-interest expenses will be in line with this year, excluding the CAD 10 million cost associated with the portion of DRTC we plan to divest. To even further capitalize on our operating leverage, we are undertaking the numerous AI-based initiatives across the broader organizations to drive even greater efficiency as we grow while further strengthening our risk profile. As a fully digital bank with our own proprietary core banking software, we are well-positioned to realize significant benefits from increased implementation of AI. Our opportunities in the rapidly developing digital asset industry continue to come into focus.

Speaker #1: Even with these expected growth rates, at most, we think our core non-interest expenses will be in line with this year, excluding the $10 million costs associated with the portion of DRTC we plan to divest.

Speaker #1: To further capitalize on our operating leverage, we are undertaking numerous AI-based initiatives across the broader organization to drive even greater efficiency as we grow.

Speaker #1: While further strengthening our risk profile. As a fully digital bank with our own proprietary core banking software, we are well positioned to realize significant benefits from increased implementation of AI.

Speaker #1: Our opportunities in the rapidly developing digital asset industry continue to come into focus. Both stablecoins and bank-issued tokenized deposits are gaining widespread acceptance, and the ecosystem is taking shape.

David Taylor: Both stablecoins and bank-issued tokenized deposits are gaining widespread acceptance, and the ecosystem is taking shape. At this early stage for the industry, we are being deliberately thoughtful and prudent in our approach to these opportunities with a focus on long-term value. With our unique and proprietary technology that has been consistently validated by other leaders in the industry, further strengthened by our status as a federally licensed bank in both the United States and Canada, we are very well-positioned to capitalize on this revolution in the banking and payment systems. Before I open the call to questions, a quick update on our reorganization. The week after next, we will hold a special meeting of our shareholders to vote on and approve the reorg, for which our board has unanimously recommended shareholders vote in favor. The materials associated with the special meeting are available on our website.

Speaker #1: At this early stage for the industry, we are being deliberately thoughtful and prudent in our approach to these opportunities, with a focus on long-term value.

Speaker #1: With our unique and proprietary technology, which has been consistently validated by other leaders in the industry, further strengthened by our status as a federally licensed bank in both the United States and Canada, we are very well positioned to capitalize on this revolution in banking and payment systems.

Speaker #1: Before I open the call to questions, a quick update on our reorganization. The week after next, we will hold a special meeting of our shareholders to vote on and approve the reorg.

Speaker #1: For which our Board has unanimously recommended shareholders vote in favor. The materials associated with the special meeting are available on our website. In parallel, we are preparing to request the requisite regulatory approvals, specifically from the Fed in the United States, and the Minister of Finance in Canada.

David Taylor: In parallel, we are preparing to request the requisite regulatory approvals, specifically from the Fed in the United States and the Minister of Finance in Canada. Our target, subject to these approvals, is to have the reorganization completed by the end of October 2026. I will note here that we expect to incur an additional roughly CAD 4 million in non-core costs related to reorganization in Q4 of this year. We expect the realignment of our corporate structure to a standard US bank framework to drive meaningful additional value for our shareholders as we align our structure and financial reporting to those with which global investment community are more familiar. Potential future stock index inclusion and improved access to capital as needed to further accelerate our growth as well as significant cost savings.

Speaker #1: Our target, subject to these approvals, is to have the reorganization completed by the end of October 2026. I will note here that we expect to incur an additional roughly $4 million in non-core costs related to the reorganization in the fourth quarter of this year.

Speaker #1: We expect the realignment of our corporate structure to a standard U.S. bank framework to drive meaningful additional value for our shareholders, as we align our structure and financial reporting to those with which the global investment community are more familiar.

Speaker #1: Potential future stock index inclusion and improved access to capital if needed, to further accelerate our growth, as well as significant cost savings. And finally, on the topic of the divestiture of the cybersecurity business, we had been looking at some additional potential alternatives to meet the Fed's requirement that we divest this business by September of this year.

David Taylor: Finally, on the topic of divestiture of cybersecurity business, we had been looking at some additional potential alternatives to meet the Fed's requirement that we divest this business by September of this year.

Speaker #1: Last quarter, we asked the Fed for an extension that was granted last week, so we now have until August 30 of next year to exit.

David Taylor: Last quarter, we asked the Fed for an extension that was granted last week, such that we have now until 30 August of next year to exit. We are proceeding accordingly. With that, I would like to open the call to questions. Operator?

Speaker #1: We are proceeding accordingly. And with that, I would like to open the call to questions. Operator?

Speaker #2: If you would like to ask a question, please press star, followed by the number 1 on your telephone keypad. To withdraw any questions, please press star 1 again.

Lawrence Chamberlain: If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. To withdraw any questions, please press star 1 again. Our first question comes from Joseph Yanchunis from Raymond James. Please go ahead. Your line is open.

Speaker #2: Our first question comes from Joe Yantunis with Raymond James. Please go ahead, your line is open.

Speaker #3: Good morning. Good morning, Joe.

Joseph Yanchunis: Good morning.

David Taylor: Good morning, Joe.

Speaker #4: Good morning, Joe.

Nicolas Ospina: Good morning, Joe.

Speaker #3: So, in your prepared remarks, you said the NIMs should trend back towards the 2.3% kind of range as liquidity normalizes. What do you need to have happen for that to occur, and how much of that recovery is driven by lower liquidity, better deposit mix, or stronger SRP yields?

Joseph Yanchunis: In your prepared remarks, you said the NIM should trend back towards 2.3% kind of range as liquidity normalizes. What do you need to have happen for that to occur, and how much of that recovery is driven by lower liquidity, better deposit mix, or stronger SRP yields? Are you expecting the NIM to return to those levels in Q4?

Speaker #3: And are you expecting the NIM to return to those levels in the fourth quarter?

Speaker #4: Yes. Joe, the liquidity we've been maintaining, of course, was partly due to our beginning operations in the United States. So we just are prudent to maintain a lot more cash.

David Taylor: Yes, Joe, the liquidity we have been maintaining, of course, was partly due to beginning operations in the United States. We just thought it prudent to maintain a lot more cash. With some anomaly happening in Canada, with our deposit rates increasing to about 70 basis points over the same term Government of Canada bond, that means the liquidity actually costs us a few basis points, maybe 10, 15 negative. Now that we are well-established in the United States, we can bring our liquidity levels back down to around 5% to 5.5%, which means we will not be losing money on liquidity. In the past, we did not actually lose money on liquidity. We actually made a few basis points. It is important for us to get it down. With respect to timing, gee, we are growing so rapidly now.

Speaker #4: And with the kind of anomaly happening in Canada, with our deposit rates increasing to about 70 basis points over the same term in Government of Canada bonds, that means the liquidity actually costs us a few basis points—maybe 10, 15, negative.

Speaker #4: And now that we're well established in the United States, we can bring our liquidity levels back down to around 5–5.5%, which means we won't be losing money on liquidity.

Speaker #4: In the past, we didn't actually lose money on liquidity; we actually made a few basis points. So it's important for us to get it down.

Speaker #4: And with respect to timing, gee, we're growing so rapidly now. We put on about $300 million since the end of the quarter, July 31.

David Taylor: We put on about CAD 300 million since the end of the quarter, 31 July. We are up to CAD 7.2 billion right now from what was CAD 6.9 or so, Nico?

Speaker #4: We're up to $7.2 billion right now, from what was $6.9 or so, Nico. Yeah. So it's coming on fast and furious. And those are high-yielding traditional SRP rather than the purchased ones.

Nicolas Ospina: That is right.

David Taylor: Yeah. It is coming on fast and furious. Those are high yielding traditional SRP rather than the purchased ones where we only made maybe 80, 90 basis points. On our homegrown SRPs, we make about 250 or so. I would say NIM will get back to around 230 for next quarter and the rest of the year. For the Canadian listeners, we are still about 50% better NIM than the entire banking industry in Canada, and it is even better than that in that most of the banking industry, well, all the banking industry is providing extraordinary expected loss provisions. You might note that ours is averaging close to zero. I think it was 2 basis points last quarter. Not only do we have the widest margin in the country by far, but we give nothing back for loan losses either.

Speaker #4: We only made maybe 80 or 90 basis points on our homegrown SRPs. We make about 250 or so. So I'd say NIM will get back to around 230 for next quarter and the rest of the year.

Speaker #4: For the Canadian listeners, we're still about 50% better NIM than the entire banking industry in Canada. And it's even better than that in that most of the banking industry—well, the banking industry is providing extraordinary expected loss provisions.

Speaker #4: And you might note that ours is averaging close to zero. I think it was two basis points on the last call. So not only do we have the widest margin in the country, by far, but we give nothing back for loan losses either.

Speaker #4: So, while we're obsessing on NIM, let's face it, we're incredible at AI. In the country where most of our assets are situated, it gets better in the States, because that anomaly over risk-free rate in the States is only 10 to 15 basis points over U.S. Treasuries.

David Taylor: While we are obsessing on NIM, a space that we are incredible at in the country where most of our assets are situated, it gets better in the States because that anomaly over risk-free rate in the States is only 10, 15 basis points over US Treasury. As we start booking assets in the States, as we are predicting at least 3 billion more going on soon, gee whiz, it just gets better and better. It is sort of amazing. I do not know if the market has kind of missed it, but we have revolutionized the CAD 1 trillion asset-backed security market by bringing out this real-time purchase program, where not only do our clients get their money back right away, not have to wait 60, 90 days to package up and pay accountants and investment bankers and lawyers. They also run a huge interest rate risk while they are doing this.

Speaker #4: So as we start booking assets in the States, as we're predicting at least $3 billion more going on soon—gee whiz, it just gets better and better.

Speaker #4: It's sort of amazing—the market's kind of missed it—but we have revolutionized the $1 trillion asset security market by bringing all these real-time purchase programs.

Speaker #4: I mean, not only do our clients get their money back right away—not having to wait 60, 90 days to package up and pay accountants, investment bankers, and lawyers—they also run a huge interest rate risk while they're doing this.

Speaker #4: And rates move up. That means their portfolios drop. With us, they get to lock the rate in, virtually, in 10 minutes. One big firm said to me, "Once a day would be great, Dave." So, I mean, I kind of find it odd that we're obsessing over a few basis points in margin.

David Taylor: Rates move up, that means their portfolio dropped. With us, they get to lock the rate in virtually in 10 minutes. One big firm said to me, "Once a day would be great, Dave." I kind of find it odd that we are obsessing on a few basis points in March, and we just brought something out that renders the traditional asset-backed security method obsolete. It is interesting that that seems to be missed. However, it is always the case where you are an innovator, you bring something out brand new, and folks take a while to catch on. When I came out with a branchless bank model in 1993, everybody told me that was impossible and couldn't be done and everything else. Here we are again with the adoption of AI to this traditional ABS market and revolutionizing it, which you would think that is what people would be looking at.

Speaker #4: We just brought something out that renders the traditional aspect security method obsolete. It's interesting that that seems to be missed. But, however, it's always the case for an innovator.

Speaker #4: You bring something out brand new, and folks take a while to catch on. When I came out with a branchless bank model in 1993, everybody told me that was impossible and couldn't be done, and everyone else...

Speaker #4: And here we are again, with the adoption of AI into this traditional ABS market and revolutionizing it—which, you'd think, is exactly what you'd be looking at.

Speaker #4: I guess it's like when the horse and buggy came out—horse and buggies were means of transportation. Then, someone came out with the automobile. There were still folks that needed to have horses and buy hay and stuff like that to keep going until it caught on.

David Taylor: I guess it is when the horse and buggy came out. Horse and buggies were means of transportation. Someone came out with an automobile. It was still folks that needed to have horses and buy hay and stuff like that to keep going until it caught on. Sorry about the long-winded one there, Joe, but you are-

Speaker #3: Sorry about the long-winded one there, Joe, but—

Joseph Yanchunis: That is all right. I appreciate the color there. I just wanted to drill down on the expected growth in fiscal 2027. So you are expecting at least CAD 3 billion of growth in the US, which would effectively take you to CAD 4 billion exiting the next fiscal year. How much of that target is already effectively spoken for through existing partners like Financeit and ECN, and how much is still dependent on signing new partners?

Speaker #4: That's all right. I appreciate the color there, but I just wanted to drill down on the expected growth in fiscal '27. So, you're expecting at least $3 billion of growth in the U.S., which would effectively take you to $4 billion exiting the next fiscal year.

Speaker #4: So, how much of that target is already effectively spoken for through existing partners like Financeit and ECN, and how much is still dependent on signing new partners?

Speaker #3: I'd say about half is through the existing, and the other half is from prospects that we're already talking to. And I've doubled the size of the team.

David Taylor: I would say about half through the existing and the other half are prospects that we are already talking to. I have doubled the size of the team in the United States, the SRP team, with the addition of Moez Kassam and Luke. So more hands at the pump, and I may add another two to it also. It is a huge market, the United States, and the sooner we get it on the books, the better. If you look at CAD 3 billion to, say, 250 basis point spread and use an effective tax rate of about 25%, that is about a $1.75 a share increase in US dollars that we just put out there. That is just the United States. Canada might be able to do the same. Let us hedge my bet, call it Canadian dollars.

Speaker #3: In the United States, the SRP team—with the addition of Mo, Dennis, and Luke—now has more hands at the pump. And I may add another two to it also.

Speaker #3: It's a huge market in the United States, and the sooner we get on the books, the better. If you look at $3 billion to, say, a 250 basis points spread, and use an effective tax rate of about 25%, that's about $1.75 a share increase in US dollars.

Speaker #3: We just put it out there. That's just the United States. In Canada, we might be able to do the same and hedge my bet—call it Canadian dollars—because our existing partners in Canada, including Financeit and some of the huge ones, I mean, they're signing up as fast as they can to get real-time working for them.

David Taylor: Because our existing partners in Canada, including Financeit and some of the huge ones, they are signing up as fast as they can to get real-time working for them. As I was saying, they do not want to run interest rate risk. Why should you? They like to get their money back right away. Because when they are borrowing, they do not have to have an onerous sort of debt-to-equity ratio to contend with. So, they can get their capital back faster, their ROE goes through the roof. They eliminate interest rates. It is just, when I say revolutionary, that is what Moez Kassam said when I was receiving this undeserved award for Canadian Financial Executive of the Year. Mo said, "This is a revolution to the industry." So I say, "Yeah, you are coming back on board, right, Mo?" Yeah, it is great. I may bring another team in too.

Speaker #3: As I was saying, they won't run interest rate risk. Why should you? And you'll have to get the money back right away. And because, in our borrowing, they don't have to have an onerous sort of debt-to-equity ratio to contend with.

Speaker #3: So you can get their capital back faster; their ROE goes through the roof. And they eliminate interest rates. It's just, sort of, when I say revolutionary—that's what Mo Dennis said when he was receiving this undeserved award for Canadian Financial Executive of the Year.

Speaker #3: Mo said, "This is a revolution to the industry." So I said, "Yeah, you're coming back on board, right, Mo?" Yeah, it's great. And I may bring another team in too. So Mark, in $3 billion in the United States additional, and maybe another $3 billion Canadian, just from our existing partners.

David Taylor: Mark in CAD 3 billion in the United States additional, and maybe another CAD 3 billion Canadian, just from our existing partners. There are a few more just signed up. I think two or three more just signed up in Canada, too.

Speaker #3: And there's a few more that just signed up. I think two or three more just signed up in Canada, too.

Speaker #4: I mean, you're talking about truly explosive growth here. At what point does additional capital become necessary to support this runway?

Joseph Yanchunis: You are talking about truly explosive growth here. At what point does additional capital become necessary to support this runway?

Speaker #3: Well, if we get our dream come true, we'll be risk-weighting our homegrown aspect securities the same as if we had purchased them under the new Basel III rules, which is 20%.

David Taylor: Well, if we get our dream come true, we will be risk-weighting our homegrown asset-backed securities the same as if we had purchased them under the new Basel III rules, which is 20%. If we can get that done, I have hired a guy to make that happen. Chi-An Chikany used to be with Bank Analytics through KBW, has come on board for that mission. If we can get that put to bed, which is quite realistic considering Basel III allows for it, and why would your homegrown ABSs be risk-weighted different than the ones you just purchased from somebody else or the ones we sold to somebody else? Then we are at 20% risk-weighted, and then there is no need for any more capital. At that point, we are generating capital at a fast and furious rate, and we would self-fund. Sorry, investment bankers.

Speaker #3: If we can get that done, I've hired a guy to make that happen. GN to County used to be with Bank Analysts, but KVW has come on board for that mission.

Speaker #3: If we can get that put to bed, which is quite realistic considering Basel III allows for it. And why would your homegrown ABSs be risk-weighted differently than the ones you just purchased from somebody else?

Speaker #3: So once we sold to somebody else, then we’re at 20% risk-weighted. And then there’s no need for any more capital. At that point, we’re generating capital at a fast and furious rate.

Speaker #3: And we'd self-fund. Sorry, investment bankers—although it is a trillion-dollar market, so even with that, maybe we'll be back. Yeah, we're only looking at 1% of a trillion-dollar market in the near future, with $10 billion.

David Taylor: Although, it is a trillion-dollar market, so even with that, maybe we will be back. We are only looking at 1% of a trillion-dollar market in the near time, the near future with CAD 10 billion. I cannot see anybody using anything else other than what we have got on the table. Why run those monster risks with interest rates? Why not get your money back in your pocket? Why not give your shareholders some of their money back? You do not need all the equity that you have got supporting the business anymore. So that would be dreaming in technicolor, but I have hired the guy and we are underway with that, and Basel III did change that and it did allow for it. It makes sense.

Speaker #3: But I can't see anybody using anything else other than what we've got on the table. Why run those monster risks with interest rates? And why not get your money back in your pocket?

Speaker #3: Why not give your shareholders some of their money back? You don't need all the equity that you've got sparing to business anymore. I mean, so that would be dreaming in technicolor, but I have hired the guy and we are underway with that.

Speaker #3: And Basel III did change, and it did allow for it. And it makes sense. I mean, why would a regulator want to let you risk-weight your asset at 20% just because you bought it from somebody else, when it's identical to the one you've homegrown?

David Taylor: Why would a regulator let you risk-weight your asset at 20% just because you bought it from somebody else when it is identical to the one you have homegrown?

Speaker #4: All right. Well, I appreciate the color, and thank you for these thorough answers. I will hop back in the queue.

Joseph Yanchunis: All right. Well, I appreciate the color. Thank you for those thorough answers. I will hop back in the queue.

Speaker #3: All righty. Well, thanks, Joe.

David Taylor: Well, thanks, Joe.

Speaker #1: Our next question comes from Tim Switzer from KBW. Please go ahead, your line is open.

Lawrence Chamberlain: Our next question comes from Tim Switzer from KBW. Please go ahead, your line is open.

Speaker #5: Hey, good morning. Thank you for taking my questions.

Tim Switzer: Hey, good morning. Thank you for taking my questions.

Speaker #3: Well, go ahead, Tim. We're hearing the fog in Canada here. I've got Enco beside me here. He traveled all the way up from St.

David Taylor: Well, go ahead, Tim. We are here in the fog in Canada here. I have Nico beside me here. He traveled all the way up from St. Pete to find it just as foggy and steamy and hot here in Canada.

Speaker #3: Pete, to find it just as foggy and steamy and hot here in Canada.

Speaker #5: Lucky you, Nico. A quick follow-up on your comment about the risk-weighting here. What's the process like for getting a lower risk-weighting on your RPP loans?

Tim Switzer: Lucky you, Nico. A quick follow-up on your comment about the risk-weighting here. What is the process like for getting a lower risk-weighting on your SRP loans, and is there any timeline on when you think you can get approval for that?

Speaker #5: And is there any timeline on when you think you can get approval for that?

Speaker #3: Well, I'm guessing sometime mid-2027 our sort of dive into the HEAVEN program would be in place. That would mean the assets that we have are risk-weighted the same as those that we would purchase.

David Taylor: Well, I am guessing sometime mid-2027 our sort of dive into heaven program would be in place. That would be the assets that we have are risk-weighted the same as those that we would purchase. It would go through, we would make a presentation to OCC to have our assets risk-weighted in that fashion. So I am hedging my bet a bit mid-2027. There are some phases in between where we could probably get most of that effect done a lot sooner. There are methods in Canada in particular to employ kind of an insurance policy on your assets and get a much lower risk-weighting. Other banks have already done and used, so the regulators are familiar with it. Then there are some companies who have approached us that would take the B tranche on their own books, and that has already gone through the regulatory works and been improved.

Speaker #3: It would go through, we'd make a presentation to OCC to have our assets risk-weighted in that fashion. So, I'm hedging my bet a bit—mid-2027.

Speaker #3: There are some phases in between where we could probably get most of that effect done a lot sooner. There are methods in Canada, in particular, to employ an insurance policy on your assets and get a much lower risk weighting.

Speaker #3: Other banks have already done and used it, so the regulators are familiar with it. And then there are some companies that have approached us that would take the B tranche on their own books, and that's already gone through the regulatory works and been improved.

Speaker #3: So the dive went to heaven. The Holy Grail is maybe mid-2027. I hope it's sooner because I've got a real good guy in the job. GN, are you listening?

David Taylor: The dime went to heaven. The Holy Grail is maybe mid-2027. I hope it is sooner because I have a real good guy on the job. Ian, are you listening? The other phase is the first one with the insurance. Maybe I will get that in a bit sooner, like a month or 2 from now.

Speaker #3: And the other phases—the first one with the insurance—maybe I'll get that in a bit sooner, if I get a month or two from now.

Speaker #5: Okay, interesting. And then your comment about 2027 core expenses should be in line with this year. Just given all the one-timers and transitory costs, what's the base we should be using for 2027?

Tim Switzer: Okay. Interesting. Your comment about 2027 core expenses should be in line with this year. Just given all the one-timers and transitory costs, what is the base we should be using for 2027? If you can provide a dollar range, that would be helpful.

Speaker #5: Or, if you can provide a dollar range, that would be helpful.

David Taylor: Nicholas sits beside me. Around 19.8 or something like that.

Speaker #3: Nicole said, beside my room, 19.8 or something like that.

Speaker #4: 19.8 is kind of like the run rate that we have right now, Tim.

Nicolas Ospina: 19.8 is kind of like the run rate that we have right now, Tim.

Speaker #5: Can you repeat that?

Tim Switzer: Can you repeat that?

David Taylor: And-

Speaker #3: And 19.

Nicolas Ospina: 19.8.

Speaker #4: 19.8.

Speaker #3: 19.8, Tim. Tim, the other thing to keep in the back of your mind is we put it out there. We fully endorse the AI in this bank.

David Taylor: 19.8, Tim. Tim, and the other thing to keep in the back of your mind as we put it out there, we fully endorsed AI in this bank. Of course, it was real easy for us because we are all tech anyways. There is a lot of savings coming. I mean, obviously, just demonstrating what we can do with AI on the real-time purchase program, that is phenomenal. There are lots of other areas in our bank that our team is looking to using AI to make themselves much more efficient. I will put it out there. It might take a week in the past to compose a credit application for a new SRP customer, say a week. Now that would be pushing it. That would be our guys really working really hard on that. That could be done now in less than a day with AI.

Speaker #3: And of course, it was real easy for us because we're all tech anyways. And there's a lot of savings coming. I mean, obviously, just demonstrating what we can do with AI on the real-time purchase program—that's phenomenal.

Speaker #3: And there's lots of other areas in our bank that our team is looking to use AI to make themselves much more efficient. I'll put it out there.

Speaker #3: It might take a week in the past to compose a credit application for a new SRP customer—say, a week—and that would be a portion of that.

Speaker #3: That would be our guys really working hard on that. That could be done now in less than a day with AI.

Speaker #5: Oh, okay. If I heard you correctly, you said $19.8. So it'd be about $70 million Canadian annualized.

Tim Switzer: Oh, okay. If I heard you correctly, you said 19.8, so it would be about CAD 70 million annualized?

Speaker #3: Yeah, that's what we're looking at now, without any improvements, with the AI that we have well underway here. We have what we call an aquarium.

David Taylor: Yeah, that is what we are looking at now. Without any improvements with AI that we have well underway here, we have what we call an Enlighten Aquarium, Microsoft Aquarium. So all the data at the bank sits nicely, securely, and safely in this aquarium. But our staff has access to company AI to manipulate data and do statistical analysis. It is so cool. We have a data warehouse that is part of our core banking system that I invented many years ago. It gives our staff the ability to, say, ask, "How many Ducati loans do we have in Alberta?" Not only does it give it to you, but it will actually put in a Microsoft PowerPoint presentation for you. So it is fantastic. Maybe the reason why I am so bullish on this as opposed to maybe my fellow bankers, maybe this has been missed by the market. We own our core.

Speaker #3: Microsoft Aquarium. So, all the data at the bank sits nicely, securely, and safely in this aquarium. But our staff has access to the AI to manipulate data and do test analysis, and it's so cool.

Speaker #3: You know, we have a data warehouse that's part of our core banking system. I invented it many years ago. It gives our staff the ability to, say, ask, "How many motorcycle loans do we have in Alberta?" Not only does it give you that information, but it'll actually put it in a PowerPoint presentation for you.

Speaker #3: So it's fantastic. And maybe the reason why I'm so bullish on this, as opposed to maybe my fellow bankers, is that this has been missed by the market.

Speaker #3: We own our core. We created our core. It's the VersaBank core. We're not beholden to some other core provider, where you might have to go into a queue and wait maybe three or four years to have some sort of innovation put through.

David Taylor: We created our core. It is the VersaBank core. We are not beholding to some other core provider that you may have to go into a queue and wait maybe 3 or 4 years to have some sort of innovation put through. VersaBank's core banking system was conceived to never constrain what our lenders could think of. So if they wanted, they put a loan together that had uneven cash flows, maybe payments in the summer, not the winter, anything they could think of, different bases for Bank of Montreal Prime, CIBC Prime, bankers acceptances, whatever. That core banking system that we put together gives a huge advantage. This is why we can do this stuff. How could you invent a Receivable Purchase Program and launch it? What are we doing? We announced about 60 days ago. It is now fully functional. We are signing up customers.

Speaker #3: VersaBank's core banking system was conceived to never constrain what our lenders could think of. So if they wanted, they could put a loan together that had uneven cash flows—maybe payments in the summer and not in the winter—anything they could think of. Different basis for a bank loan, for all primes: CIBC Prime, Bankers’ Acceptances, whatever.

Speaker #3: That core banking system that we put together gives us a huge advantage because this is why we can do this stuff. How could you invent a real-time purchase program and launch it?

Speaker #3: What are we doing? We announced about 60 days ago. It's now fully functional. We're sending out customers. I mean, just imagine if you had to contend with the rest of the banking industry with one of these archaic core providers.

David Taylor: I mean, just imagine if you had to contend with the rest of the banking industry with one of these archaic core providers that you are going through. Geez. There is no comparison.

Speaker #3: It's struggling through. There's no comparison.

Speaker #5: Tim, Lawrence here. Let me just jump in and remind you that, of that $80 million, $10 million is directly attributable to the cybersecurity business. So, when that gets divested, that goes away.

Lawrence Chamberlain: Tim, Lawrence here. Let me just jump in and remind that of that CAD 80 million, CAD 10 million is directly attributable to the cybersecurity business. So when that gets divested, that goes away.

Tim Switzer: Yeah. Okay. All right. That is helpful. And then one last one for me. Just given the extension on the divestment there, could you provide some color on where we are in the process of a potential sale here? Is there anything else being considered like a spinoff? In terms of a sale, there has been some nice movement upwards in cyber stocks lately. Should that help speed this process along maybe and help with the valuation you could receive?

Speaker #5: Okay, all right. That's helpful. And then one last one for me: just given the extension on the divestment there, could you provide some color on where we are in the process of a potential sale here?

Speaker #5: And is there anything else being considered, like a spin-off? And then, in terms of a sale, there's been some nice movement upwards in cyber stocks lately.

Speaker #5: Should that help speed this process along, maybe? And help with the valuation you could receive?

Speaker #3: Yeah, it definitely should. I mean, obviously, we're living in a terrible world where cybercriminals are abound, and there's no end in sight to that, unfortunately.

David Taylor: Yeah, it definitely should have been. Obviously, we live in a terrible world where cybercriminals are abound, and there is no end in sight to that, unfortunately. We were just thankful that Fed gave us a little longer to divest a bit. We have in mind divesting a lot sooner than the one-year extension. It just takes the heat off us, and it is more of a human thing. We were fully deployed with this Project Optimize. It is a big project, and everybody is kind of really, really busy doing that. DRTC was a bit of a distraction. So now we have got a bit of time. We are engaged with a few likely purchasers, and I am sure somebody will become the new proud owner. But we are thankful the Fed cut us a bit of slack. As they say in negotiations, he who wants it the most loses.

Speaker #3: We were just thankful the Fed gave us a little longer to divest a bit. We wouldn't have minded divesting a lot sooner than the one-year extension.

Speaker #3: It just takes the heat off us, and it's more of a human thing. We're fully deployed with this project optimized. It's a big project.

Speaker #3: And everybody's kind of really, really busy doing that. And the divestiture DRTC was a bit of a distraction. So now we've got a bit of time.

Speaker #3: We're engaged with a few likely purchasers, and I'm sure some may become the new proud owner, but we're thankful the Fed gave us a bit of slack.

Speaker #3: As they say in negotiations, he who wants it the most loses, and we certainly didn't want to be in any hurry while we've got all these other projects optimized, distracting us.

David Taylor: We certainly didn't want to be in any hurry while we've got all this other Project Optimize distracting us.

Speaker #5: Okay. Great. Thank you, David.

Tim Switzer: Okay, great. Thank you, David.

Speaker #1: Our next question is from Tim. Andrew Scott from Roth Capital, please go ahead. Your line is open.

Operator: Our next question comes from-

David Taylor: All right.

Operator: Andrew Scutt from Ross Capital. Please go ahead. Your line is open.

Speaker #2: Hey, good morning, guys. Congrats on the continued progress, and thanks for taking my questions. One quick two-parter from me on the expected 27 U.S. SRP growth.

Andrew Scutt: Hey, good morning, guys. Congrats on the continued progress, and thanks for taking my questions. Just one quick two-parter for me on the expected 2027 US SRP growth. Firstly, can you kind of remind us where you are funding these deposits specifically for the US business and kind of help us quantify any incremental spread you may be picking up growing in the US versus Canada? Sorry if I missed this earlier, but just secondly on the expected CAD 3 billion in growth in 2027, did you guys target a number in which you will keep on your balance sheet versus securitized?

Speaker #2: So, first one — can you kind of remind us where you're funding these deposits specifically for the US business, and kind of help us quantify any incremental spread you may be picking up growing in the US versus Canada?

Speaker #2: And then, sorry if I missed this earlier, but just secondly, on the expected $3 billion in growth in '27, did you guys target a number that you will keep on your balance sheet versus securitize?

Speaker #3: We'll keep the whole work center balance sheet. Andrew, just for a quick answer—no, I think it'll happen fairly quickly, in that with the new team out there marketing it, it should go on rather rapidly.

David Taylor: We will keep the whole work center balance sheet, Andrew, just for a quick answer. I think it will happen fairly quickly in that with the new team out there marketing it should go rather rapidly.

Speaker #2: Understood. And now, just the first part on the NIMS across the borders.

Andrew Scutt: Understood. Just the first part on the NIMs across the borders.

Speaker #3: Oh, okay. Yeah. Yeah. The NIM in Canada has been unusually compressed, with the margin over the risk-free rate going to a historic high of 70 basis points.

David Taylor: Oh, okay. The NIM in Canada has been unusually compressed by the margin over the risk-free rate going to a historic high of 70 basis points. In the States, it is running around 10, 15 basis points over the same term, US Treasury. Our method of gathering deposits on both sides for us is the same. We go exclusively to broker deposits and we are a drop in the bucket and have no issue whatsoever raising as much money as we need virtually instantaneously from our deposit broker partners. That is what we have done since the beginning, 1993. I created that industry by telephone modems and IBM PCs, putting them in the offices of what I call deposit brokers, though they were not called that then. They were financial service providers and investment bankers and such.

Speaker #3: In the States, it's running around 10 to 15 basis points over the same term U.S. Treasury, and our method of gathering deposits on both sides of the board is the same.

Speaker #3: We go exclusively to brokered deposits, and we're a drop in the bucket and have no issue whatsoever raising as much money as we need—virtually instantaneously—from our deposit broker partners.

Speaker #3: So that's what we've done since the beginning, 1993. I created that industry by telephone modems and IBM PCs, putting them in the offices of what I call deposit brokers.

Speaker #3: So they weren't called that then. They were financial service providers and investment bankers, and such. Now, Dreaming Intently Color, as you know, we have got the world's first tokenized deposit up and running, ready to roll.

David Taylor: Now, dream it in Technicolor, as you know, we have got the world's first tokenized deposit up and running, ready to roll. Sooner or later, we will roll that out. That puts FDIC-insured CDs in a digitally represented, as we call them, tokenized deposits, out through the entire United States, and serves as a beautiful payment vehicle too. With FDIC's stamp of approval on it is virtually risk-free. That is coming. I think the entire banking industry is waking up to that. You see in the newspaper almost every day, you see some group of banks or banks talking about stablecoins. Stablecoins, I think, are a little bit a thing of the past. They will evolve into tokenized deposits.

Speaker #3: And sooner or later, we'll roll that out. And that puts FDIC-insured CDs, digitally represented—as we call them, tokenized deposits—out through the entire United States, and serves as a beautiful payment vehicle, too.

Speaker #3: And with the FDIC stamp of approval on it, it's virtually risk-free. So it's like a— and that's coming. I think the entire banking industry is waking up to that.

Speaker #3: You see in the newspaper almost every day, you see some group of banks—some banks—talking about stablecoins, or that the fast stablecoins, I think, are a little bit a thing of the past.

Speaker #3: They'll evolve into tokenized deposits. But when my dream comes true, we'll be raising our deposits through the tokenized deposit networks and paying a lot less, because our competition right now is stablecoins, which so far aren't able to pay any yields. So that's the dream come true.

David Taylor: But when my dream comes true, we will be raising our deposits through the tokenized deposit networks and paying a lot less because our competition right now is stablecoins, which so far are not able to pay any yields. That is the dream come true. But in the meantime, it is just the traditional deposit brokers that are sending us money as we. No issue whatsoever. Part of that is because we are a drop in the bucket. I think it is, what, a $10 trillion deposit market. Our aspiration is maybe $10, $15, $20 billion. Well, that is still a drop in the bucket.

Speaker #3: But in the meantime, it's just traditional deposit brokers that are sending us money and we have no issue whatsoever. Part of that is because we're a drop in the bucket.

Speaker #3: I think it's like a $10 trillion deposit market. Her aspiration is maybe $10, $15, $20 billion. Well, that's still a drop in the bucket.

Speaker #2: Understood. We appreciate the call, and congrats again on the continued progress.

Andrew Scutt: Understood. Well, appreciate the call and congrats again on the continued progress.

Speaker #3: Well, thanks, Andrew. Exciting times.

David Taylor: Well, thanks, Andrew. Exciting times.

Speaker #1: Our next question comes from Eli Rodney from Bullpen Research. Please go ahead, your line is open.

Operator: Our next question comes from Eli Rodney from Bullpen Research. Please go ahead. Your line is open.

Speaker #4: Morning, guys. And Nico, I hope you didn't fly in yesterday with the storm we had here.

Eli Rodney: Morning, guys. Nico, I hope you didn't fly in yesterday with the storm we had here.

Speaker #3: Yeah, no, I came early in the week.

Nicolas Ospina: Yeah, no, I came early in the week.

Speaker #4: Good. So I think, starting off on that $3 billion target, given the attractiveness of the real-time SRP, you guys have talked about a 90/10 split this year on funded volumes.

Eli Rodney: Good. So, I guess starting off on that CAD 3 billion target. Given the attractiveness of the real-time SRP, you guys have talked about a 90/10 split this year on funded volumes. I am wondering, should we be thinking the same split for CAD 3 billion in fiscal 2027?

Speaker #4: I'm wondering, should we be thinking the same split for $3 billion in fiscal '27?

Speaker #3: Yeah, Eli, I guess right now I don't think there's any need to purchase any more. We've got so much demand for the traditional on-balance-sheet securitization that I can't see buying any more.

David Taylor: Yeah. Eli, I guess right now I do not think there is any need to purchase any more. We have got so much demand for the on-balance sheet securitization that I cannot see buying any more. They come in a much thinner spread, and even though they are 20% risk-weighted, now we are well underway with the homegrown SRP used in a real-time way. I would go 100% on the homegrown. Then remember you got the Canadian side too, Eli, of course, because I just threw that out there for the US growth. But our Canadian business is well-established, and we have 20, 25 or so partners, and every one of them would rather get their money sooner rather than later. So I expect, let us just say, CAD 3 billion Canadian on our side of the border here. That is pretty realistic.

Speaker #3: They come in a much thinner spread. And even though they are 20% risk-weighted, now we're well underway with the homegrown SRP, used in a real-time way.

Speaker #3: I go 100% on the homegrown. And then, when we got the Canadian side too, Eli—of course, because I just threw that out there for the U.S. growth.

Speaker #3: But our Canadian business is well established, and we have about 25 partners, and every one of them would rather get the money sooner rather than later.

Speaker #3: So I expect, let's just say, $3 billion Canadian on our side of the border here. And that's pretty realistic. I mean, we have maybe half of Financeit's business, and they have $3 billion already on the books with us.

David Taylor: I mean, we have maybe half of Financeit's business, and they have CAD 3 billion already on the books with us. There is a bunch more lined up. It is so attractive. It is one of those ones you do not have to market. I get all my money back right away. Theoretically, it is 10 minutes it takes us to turn it over. But if it is just once a day they do a batch, comes in, that is the money back in the till, can be lent out the next day to some other guy that wants to buy a Ducati motorcycle. How much equity does the point-of-sale finance company have to have? Well, theoretically nothing. They are just a supply chain for us. We are holding back sufficient cash to soak up what we think would be the delinquencies.

Speaker #3: There's a bunch more lined up. It's so attractive. I mean, it's one of those ones you don't have to market. I can have my money back right away.

Speaker #3: Theoretically, it takes us 10 minutes to turn it over. But if it's just once a day, they do a batch that comes in. I mean, that's the money back in the till that can be lent out the next day to some other guy who wants to buy a motorcycle.

Speaker #3: And how much equity does the point-of-sale finance company have to have? Well, theoretically, nothing. They're just a supply chain for us. We're holding back sufficient cash to soak up what we think would be the delinquencies.

Speaker #3: And, theoretically, for those that are mathematically inclined, the holdback we have is what some other lender might have in their expected loss provision. It's the same math.

David Taylor: Theoretically, for those who are mathematically inclined, the holdback we have is what some other lender might have in their expected loss provision. It is the same math. As long as we hold back enough, what you see hit our bottom line, our ECL, is next to nothing, and that is what you have seen over the decades, like plus or minus 2 or 3 basis points. But it is a good model. We proved it out doing it a clunky way by buying batches, and now we just adapted the program to AI, and we built it ourselves downstairs in the tech facility here. It was constructed by our guys and put into play. Of course, as you would expect, everybody is sort of saying, "Where do I sign? How come I cannot have that?" That is what we hear. Well, of course you can.

Speaker #3: And as long as we hold back enough, what you see hit our bottom line—our ETL—is next to nothing. That's what you've seen over the decades.

Speaker #3: Like, plus or minus 2 or 3 basis points. But it's a good model. We proved it out, kind of in a clunky way, by buying batches.

Speaker #3: And now we just adapted the program to AI, and we built it ourselves. There's—downstairs in the tech facility here—it was constructed by our guys.

Speaker #3: And put it into play. And of course, as you'd expect, everybody's sort of, "Where do I sign? How come I can't have that?" That's what we hear.

Speaker #3: Jeez. Well, of course you can.

Eli Rodney: Yeah. No. I imagine it's a pretty easy sales process for you guys. Maybe on that, specifically on the rollout of the real-time program, maybe a more qualitative question than anything, but could you give a sense for maybe Financeit, for example, how much of their volumes are running through the real-time versus the traditional program? I assume the idea is that everything goes over there at some point, but is it already there, or is there a ramp-up period to get to that point?

Speaker #4: I imagine it's a pretty easy sales process for you guys. Maybe on that—specifically on the rollout of the real-time program—this is more of a qualitative question than anything, but could you give a sense for maybe, like finance, for example, how much of their volumes are running through the real-time versus the traditional program?

Speaker #4: I assume the idea is that everything goes over there at some point, but is it already there, or is there kind of a ramp-up period to get to that point?

Speaker #3: I think their entire flow, for us, depends on going through the real-time program. As it should—rather than sending it to us and having it batched up, which might take a month to process, why not get it done every day?

David Taylor: I think their entire flow of hints for us is going through the real-time program, as it should. Rather than send it to us and have it batched up and maybe take a month to process it, why not get it done every day? So yeah, the system's up and running and running well. Thankfully, our partners in the States, ECN, decided to try it out too. We say, "Try it, you'll love it." I have a terrible analogy for that. It's like getting hooked. You're hooked on it. Once you're used to getting your money every day, are you going to go back to waiting for months and months and running interest rate risk?

Speaker #3: So yeah, the system's up and running, and running well. And thankfully, our partners in the States, CCN, decided to try it out too. And we say, try it—you'll love it.

Speaker #3: I have a terrible analogy for that. It's like getting hooked—you're hooked on it. Once you're used to getting your money every day, I mean, are you going to go back to waiting for months and months, and running interest rate risk?

Speaker #3: Man, that's a big deal with these point of sale finance companies while they're batching up is that some central bank moves the rates up a little bit and they just lost a maybe they lost their entire profit on that batch of loans that they were batching up for a securitization.

David Taylor: Man, that's a big deal with these point-of-sale finance companies while they're batching up, is that some central bank moves the rates up a little bit, and maybe they lost their entire profit on that batch of loans that they were batching up for a securitization. Interest rates go up a few basis points, oops, there goes my profit. So our system prices it immediately. This is AI doing it. Just takes the Government of Canada bond rate, click, okay, you got it. There you are. Rate's done.

Speaker #3: Interest rates go up a few basis points—whoops, there goes my profit. So our system prices it immediately. This is AI doing it. Just takes the government Kanaban rate, click OK, you got it.

Speaker #3: There you are. Rates done—like, instantaneously.

Eli Rodney: Yeah.

David Taylor: Like instantaneously purchased.

Speaker #4: Yeah, no, it seems as you've described, it's a game changer for your partners. So then on the ECN subsidiary, I feel like that's a good transition in there.

Eli Rodney: Yeah. No, it seems, as you have described, it is a game changer for your partners. On the ECN subsidiary, I feel like that is a good transition in there. If they are getting all this value from the real-time program, would you expect that, I know CAD 300 million was the original target, and there is confidence in getting over CAD 500 million a year there. How quickly is this one ramping up relative to maybe some partners in the past that you have signed? Is this the type of thing where, as you said, they get a taste for this program and now they are trying to push as much volume through as they can?

Speaker #4: Like, if they're getting all this value from the real-time program, would you expect that? I know $300 million was the original target, and there's confidence in getting over $500 million a year there.

Speaker #4: How quickly is this one ramping up relative to maybe some partners in the past that you've signed? Like, is this a type of thing where, as you said, they kind of get a taste for this program and now they're trying to push as much volume through as they can?

Speaker #3: Yeah, absolutely. I mean, we're up $300 million in the last 30 days or so, right? Went from $6.9 to $7.2. On our daily dashboard, it shows $7.2 yesterday.

David Taylor: Yeah, absolutely. We are up CAD 300 million in the last 30 days or so. We went from 6.9 to 7.2. On our daily dashboard, it showed 7.2 yesterday. Yeah, and that is just the thin edge of the wedge. Everybody, for 30 years, has been using the traditional asset-backed securities way to funding themselves, and they have got friends that are investment bankers, and they have got friends they play golf with that are accountants and lawyers. It is a traditional way of doing it, and a lot of mouths being fed in that industry. We are basically saying, "Forget those guys. They are going to go hungry." It takes a while for humans to move. I use the horse and buggy thing. You have got the horses out there. People liked horses. They like hay. They have their kids working in the barn, taking care of it. It was an industry.

Speaker #3: Yeah, and that's just the edge of the wedge. Everybody's quite— they’ve been, for 30 years, they’ve been using the traditional aspect securities way of funding themselves.

Speaker #3: And they've got friends that are investment bankers, and they've got friends they play golf with that are accountants and lawyers. And it's a traditional way of doing it.

Speaker #3: And a lot of miles being fed in that industry. And we're basically saying, forget those guys; they're going to go hungry. And it takes a while for humans to sort of move. I use the horse and buggy thing.

Speaker #3: Yeah, you've got the horses out there. People like horses. They like hay. They have their kids working in the barn, taking care of it.

Speaker #3: It was an industry. And then, all of a sudden, along comes Henry Ford with the automobile. And those things are smelly and they make a lot of noise.

David Taylor: All of a sudden comes out, Henry Ford with the automobile, and say, "Those things are smelly, and they make a lot of noise," and whatever. Well, you know it is going to change. It has to change because the factors that we talked about, fixing your rate, getting your money back early, dropping your equity requirement. Jesus. Of course they are going to do it.

Speaker #3: And whatever. But you know it's going to change. It has to change because of the factors that we talked about: fixing your rate, getting your money back early, dropping your equity requirement.

Speaker #3: Jeez. Of course, they're going to do it. It's just a stickiness of our fellow humans who take a while to adapt to things. I lived that in Canada when I came up with this.

Eli Rodney: Yeah. For sure.

David Taylor: It is just the stickiness of our fellow humans who take a while to adopt to things. I lived that in Canada when I came up with this branchless banking model. I was the first guy in 18 years to get a federal bank license. People lectured me that I needed buildings. One guy, a senior friend of a government guy in Canada, told me, "And it has to have pillars, too." I said, "Things are," I will not say his name. He knows who he is. I said, "Things are going to change. There is a different way of doing business." "Oh, no. People like to walk down to a branch and wait in line to get their loan to buy their motorcycle." I said, "No, they do not. The new generation does not want to do that.

Speaker #3: The branchless banking model was the first one in 18 years to get a federal bank license. People lectured me that I needed buildings. One senior federal government guy in Canada even told me it had to have pillars, too.

Speaker #3: I said, "Things are going— I won't say his name. He knows who he is. I said, 'Things are going to change. There's a different way of doing business.'"

Speaker #3: And oh, no. People like to walk down to a branch and wait in line to get their loan to buy their motorcycle. And I said, no, they don't.

Speaker #3: The new generation doesn't want to do that. They want to sort of lag over that bike right now and drive away with the Ducati.

David Taylor: They want to throw their leg over that bike right now and drive away with a Ducati," like me. It is a Ducati. Anyway, Eli, yeah, it is exciting times. I have staffed up a little bit. I got Moez Kassam and Luke on the job too, so that is double in the States. We could probably do more. Always, in banking, it is kind of more hands at the pump, the more deals you get.

Speaker #3: Like me if it's a Ducati. Anyway, he liked it. Yeah, it's exciting times, and I've staffed up a little bit. I got Mo, Dennis, and Luke on the job too.

Speaker #3: So that's double in the States. We probably do more. It's always, in banking, it's kind of more hands at the pump—the more deals you get.

Speaker #3: That's still a human factor, even though we're using AI. It's still—you make the phone calls, you've got to see the people. There's still a fair amount of human interaction to get somebody on board.

Eli Rodney: Yeah.

David Taylor: There is still a human factor, even though we are using AI. It is still, you make the phone calls, you got to see the people. Yeah. It is still a fair amount of human interaction to get somebody on board. So I might need a few more humans interface.

Speaker #3: So I might need a few more human interfaces.

Speaker #4: Makes sense. And given the $3 billion target, if I heard you correctly earlier, half of that would be coming from potential new partner wins.

Eli Rodney: Makes sense. Given the CAD 3 billion target, if I heard you correctly earlier, half of that would be coming from potential new partner wins.

Speaker #4: So.

Speaker #3: Yes.

David Taylor: Yes.

Speaker #4: Maybe on that piece specifically, what you guys are seeing in your pipeline there—I don't know if you can quantify—but you look at the $300 million from the ECN deal, potential for $500 million. As far as the size of what's in your pipeline in terms of funding potential, I'm sure it varies, but are there more chunky ones like that?

Eli Rodney: So maybe on that piece specifically, what you guys are seeing in your pipeline there, I do not know if you can quantify, but you look at the CAD 300 million from the ECN deal, potential for CAD 500 million. As far as size of what is in your pipeline, in terms of funding potential, I am sure it varies, but are there more chunky ones like that? Are there more deals that could be a real step change in volumes as soon as they are signed, or is it a larger number of smaller deals?

Speaker #4: Are there more deals that could be a real step change in volumes as soon as they're signed, or is it a larger number of smaller deals?

Speaker #3: No, they're all big ones. That's the difference between the Canadian and U.S. market—they're all big. Every one of them is as big as finance in Canada.

David Taylor: No, they are all big ones. That is the difference between the Canadian and US market, that they are all big. Every one of them is as big as Financeit in the States, and they all use asset-backed securities as their traditional, their go-to way of funding. Whereas in Canada, they are all kind of small, and they were not using ABS. So ABS was not a competition for us in Canada. But in the States, it is. So when we came up with this change, be able to buy instantly, that hit the ABS market right in the heart. So yeah, they are all big guys. There is nobody little in the States. Everybody is as big as Financeit. And they are all using ABS, and our new product is aimed right at the heart of ABS. It renders ABS obsolete. Whereas in Canada, they are little ones.

Speaker #3: In the States, they're all using asset-backed securities as their traditional, go-to way of funding, whereas in Canada, they're all kind of small.

Speaker #3: And they weren't using ABS, so ABS wasn't a competition for us in Canada. But in the States, it is. So when we came up with this change, they want to buy instantly.

Speaker #3: That hit the ABS market right in the heart. So yeah, they're all big guys. There's nobody little in the States—everybody's as big as finance it.

Speaker #3: And they're all using ABS. And our new product is aimed right at the heart of ABS. It renders ABS obsolete. Whereas in Canada, they're little ones.

Speaker #3: So yeah, they like the idea of getting their money back faster. But they didn't have that wait time like the big guys do in the States to get their money.

David Taylor: Yeah, they like the idea of getting their money back faster. But they did not have that wait time, like the big guys do in the States, to get their money.

Eli Rodney: Right.

David Taylor: They were borrowing by way of line of credit or something. Some Canadian bank was lending them, gave them a line of credit, margining against the receivables. It is a way bigger market in the States. And I would say every single one of the ones we are talking to are at least as big as Financeit.

Speaker #3: They were borrowing a line of credit or something. Some Canadian bank was lending them—gave them a line of credit margin against the receivables, and so, way bigger market in the States.

Speaker #3: And I would say every single one of the ones we're talking through is at least as big as finance is.

Speaker #4: Wow. Okay. So somewhere you get like $300 to $500 million a pop, $1.5 billion coming from new deals. So it really only takes three to five deals to get there.

Eli Rodney: Wow, okay. Somewhere you got CAD 300 to 500 million a pop, CAD 1.5 billion coming from new deals. It really only takes 3 to 5 deals to get there. Okay, great.

Speaker #4: Okay, great. The last one for me—there are obviously some non-core costs coming through in '26 that should largely be in the rearview for '27.

David Taylor: Yeah.

Eli Rodney: The last one for me, just on maybe framing up 2027, is obviously some non-core costs coming through 2026 that should largely be in the rearview for 2027. Then you are talking about some really large numbers on the asset growth side. Internally, do you guys have a frame for how you are thinking about ROE targets for 2027, or is it just a range that you are expecting to land in?

Speaker #4: And then you're talking about some really large numbers on the asset growth side. So internally, do you guys have a framework for how you’re thinking about asset growth targets for 2027?

Speaker #4: Or is it just a range that you're expecting to land in?

Speaker #3: I think we have it on our website at $10 billion. We get about 20% ROE, something like that, people. We've got a model up on our website, and it goes $10, $20, $30 or something in asset size and shows it.

David Taylor: I think we have it on our website. At 10 billion, don't we get about 20% ROE? Something like that, April? We have got a model up on our website, Eli.

Eli Rodney: Okay.

David Taylor: It goes 10, 20, 30 or something in asset size and shows it. Bottom line is, it seems being quite aggressive saying this, but I don't see any increase in NIEs with the volume increase. Because even though we may be adding some more humans, we are making a lot of savings using AI in every aspect of our business now. That is the offset. We will need some more specialized help, maybe more account managers in the States, like I say, maybe another team. But the processing of the credit applications is so much faster than it used to be. The analysis is so much better. You can ask Claude. In Canada, we call it Claude, of course, not Claude. Claude can do the stats.

Speaker #3: Bottom line is, it seems quite aggressive saying this, but I don't see any increase in NIEs with the volume increase. Because even though we may be adding some more humans, we're making a lot of savings using AI in every aspect of our business now.

Speaker #3: So that's the offset. We will need some more specialized help—maybe more account managers in the States, like I say, maybe another team. But the processing of the credit applications is so much faster.

Speaker #3: Than it used to be. And the analysis is so much better. You can ask Claude—in Canada, we call it Claude, of course, not Claude.

Speaker #3: You can ask Claude to do the stats. Back in the early days, when I used to be doing analysis for fish population using Fortran, that could have been a good afternoon, trying to do the stats on the population.

David Taylor: Back in the early days when I used to be doing analysis for fish populations using Fortran, that could have been a good afternoon trying to do the stats on the population. You can ask Claude to do the stats, give it all the data and say, "I would like to be 95% confident that we've taken enough cash hold-back to offset the inevitable delinquencies." I think you talk in a minute to analyze the data, and this is the entire data stream. Make 10 years through the cycle. We've signed up for the huge database that's in the United States that all the lenders use. Holy smokes, we're way more precise in what we're holding back, and we're getting the math done super fast. Yeah, it's a new world. I'm just looking at incremental revenue from the assets.

Speaker #3: You can ask Claude to do the stats, give it all the data, and say, I would like to be 95% confident that we've taken enough cash holdback to offset the inevitable delinquencies.

Speaker #3: And I think you're taking a minute to analyze the data. And this is the entire data stream, so you don't make ten years through the cycle.

Speaker #3: We've signed up for one of the huge databases in the United States that all the lenders use. So, holy smokes, we're way more precise in what we're holding back.

Speaker #3: And we're getting the math done super fast. So yeah, it's a new world. We're just looking at incremental revenue from the assets. I use rough math.

David Taylor: I use rough math, 250 basis points, CAD 3.075 billion of incremental pre-tax earnings, and we got about a 25% tax rate. You've got a buck 75 a share right there, US, and incremental.

Speaker #3: 250 basis points, $3.3 billion, $75 million of incremental pre-tax earnings. And we got about a 25% tax rate. You got a buck seventy-five a share right there, US.

Speaker #3: And incremental.

Speaker #4: Yeah, yeah, no, exciting times. I'll pass the line.

Eli Rodney: Yeah. No, exciting times. I'll pass the line.

Speaker #3: Thank you. Thank you, Eli. Good luck in the fog. You're in Toronto right now, right?

David Taylor: Thank you, Eli. Good luck in the fog. You're in Toronto right now, right?

Speaker #2: For additional questions, please press star followed by one. As we have no further questions, I'd like to turn the call back to David Taylor for closing remarks.

Operator: For additional questions, please press star followed by one. We have no further questions. I would like to turn the call back to David Taylor for closing remarks.

Speaker #3: Well, thank you, operator. And thanks again to everybody for joining us today. I look forward to speaking with you at the time of our third quarter results.

David Taylor: Well, thank you, operator. Thanks again for everybody for joining us today. I look forward to speaking to you at the time of our Q3 results. If you have any other questions that come to mind, do not hesitate to give me a call. We are familiar with Teams. We use Teams regularly here, and I can answer further questions should you have any. It is certainly exciting times VersaBank. I have been doing it for almost half a century. Started when posting machines were humanly powered with great huge levers, and then thankfully seeing the industry evolve and evolve and evolve to where we are today, where, holy smokes, it is just wonderful to be able to analyze our portfolios with such precision using the AI and to be able to deliver these new products to our clients, which in effect trickles down to consumers.

Speaker #3: And if you have any other questions that come to mind, don't hesitate to give me a call. We're familiar with Teams—we use Teams regularly here.

Speaker #3: And can answer further questions that you have, if any. It's certainly exciting times to be a bank. I've been doing it for almost half a century.

Speaker #3: It started when posting machines were humanly powered with great, huge levers, and then—thankfully—seeing the industry evolve and evolve and evolve to where we are today, where, holy smokes, it's just wonderful to be able to analyze our portfolios with such precision using the AI.

Speaker #3: And to be able to deliver these new products to our clients, which, in effect, trickles down to consumers. This is the altruistic Dave that maybe most bankers—you don't hear say that.

David Taylor: This is the altruistic, Dave, that maybe most bankers you do not hear say. Bottom line is what it means is the consumers and small businesses that rely on these point-of-sale finance companies for their capital so they can do their thing. Well, they should theoretically be able to provide those services at better rates because we are going to give their money cheaper, better, faster. That should trickle down to the economy and help folks out. Thank you again, ladies and gentlemen.

Speaker #3: But bottom line is, what it means is the consumers and small businesses that rely on these point-of-sale finance companies for their capital—so they can do their thing.

Speaker #3: Well, they should theoretically be able to provide those services at better rates because we're going to give them their money cheaper—better, faster—and that should trickle down to the economy.

Speaker #3: And help folks out. Thank you again, ladies and gentlemen.

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

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