VersaBank Q2 FY2026 earnings call

### Leadership and Organizational Updates - Nico Elspina joined as the newly appointed Global CFO, previously from Raymond James U.S. Investment Banking Group. - Former CFO John Asma now leads Canadian banking operations, leveraging his deep experience to support expansion and efficiency improvements. - The Receivable Purchase Program was renamed the Structured Receivable Program (SRP); this is a label change only with no changes to the program itself.

### Q1 2026 Core Financial Performance - Total consolidated revenue hit a new record of $36.5 million, up 31% year-over-year and 4% sequentially. Total assets grew 24% year-over-year and 6% sequentially to $6.1 billion, another record high. - Reported net income was $11.1 million ($0.35 EPS); adjusted net income excluding after-tax reorganization costs was $12.2 million ($0.38 EPS), up 49% year-over-year and 15% sequentially. - Cash and securities totaled $729 million (12% of total assets), which is higher than the historical 7% average due to U.S. expansion; CET1 ratio was 12.8% and leverage ratio was 8.2%, both above internal targets. - U.S. SRP grew more than expected: over $200 million in additional fundings in Q1, 85% of which came from higher-spread on-balance sheet core SRP. U.S. operations have already surpassed Canadian operations in efficiency, driven by lower-cost deposit funding and a leaner operating team.

### Strategic Initiatives - **Corporate Reorganization**: The firm is realigning its structure to a standard U.S. bank framework; most work is complete, with $1.5 million in pre-tax reorganization costs in Q1 (down from Q4 2025), and an additional $4-4.5 million expected in Q2. - **Cybersecurity Divestiture**: The divestiture process for DRT Cyber is progressing on schedule, with a target completion by the end of summer 2026 (potentially earlier). Completion will free up additional regulatory capital to fund core growth. - **Digital Asset Strategy**: The firm is pursuing two commercial paths for its proprietary secure digital asset technology: 1. Real Bank Tokenized Deposits (RBTDs): Cross-border pilot programs initiated in fall 2025 are progressing, with regulatory white papers completed and submitted for approval. The firm plans to offer the technology to other financial institutions for a small royalty/transaction fee, as tokenized deposits have key advantages over stablecoins. 2. Stablecoin Custody: The firm recently announced its first customer, StableCorp for Canada's first regulatory-compliant stablecoin QCAD, which serves as an industry endorsement of VersaBank's technology and regulated banking status.

All values are in Canadian dollars: 1. **Canadian Banking Operations**: Revenue contributed 27.6% of total consolidated revenue, with a 16% year-over-year increase and flat sequential growth. Reported net income was $8.7 million, which was reduced by a $1.1 million after-tax reorganization cost. All corporate expenses are allocated to this segment. 2. **U.S. Banking Operations**: Revenue reached $6.8 million, a 30% sequential increase driven by ramp-up of the Structured Receivable Program (SRP). Net income increased 40% sequentially to $2.8 million, with operating leverage improvements already taking effect. 3. **DRT Cyber (Cybersecurity)**: Revenue was flat year-over-year at $2 million. It reported a net loss of $630,000 due to higher onboarding operating costs for new cybersecurity offerings, and the business is currently in the process of being divested. 4. **Digital Meteor**: Revenue was $528,000, with net income of $179,000, driven by higher client engagement and lower operating expenses.

Total consolidated credit assets grew to a record $5.33 billion, with the SRP portfolio reaching $4.4 billion (83% of total credit assets, up from 80% quarter-over-quarter). Multifamily residential loans and other credit portfolios decreased to $0.9 billion as the firm strategically transitions to lower risk-weighted assets.

- The firm confirms it remains on track to add at least $1 billion in new U.S. SRP funding in fiscal 2026, a threefold increase from 2025, with upside potential from new partnerships that could push the total well above this target. Growth is expected to accelerate through the year, with the share of securitized SRP expected to increase after the 15% share seen in Q1. - Management expects fiscal 2026 to be the most profitable year in VersaBank's history. U.S. operating efficiency is projected to improve to the low 20% range by year-end as the SRP portfolio scales, with fixed costs already largely in place. - Net interest margin is expected to stay relatively flat at the elevated levels seen in 2025, with some upside potential. Non-interest expenses are expected to stay relatively flat year-over-year, with potential for cost savings, as $10 million in annual cybersecurity-related costs will be removed following divestiture. - Reorganization costs will be largely completed by the end of Q2, with no expected additional material costs after that, leaving a clean cost base going into 2027. Canadian insolvency deposits are expected to grow to ~$1 billion by the end of 2026 as Canada continues to experience recessionary conditions. - Excess balance sheet liquidity held for U.S. expansion is expected to be deployed into SRP assets by the end of 2026, as growth scales.

- Forward-looking results are subject to material uncertainty, and actual outcomes could differ materially from management expectations due to risks associated with new market expansion, regulatory approval for digital asset initiatives, and general macroeconomic conditions. - Canada is currently experiencing recessionary conditions, which is driving higher insolvency volumes and creates headwinds for conventional multifamily construction lending, which the firm is intentionally reducing exposure to. - Digital asset initiatives, including RBTDs and stablecoin custody, are dependent on regulatory approval; delays or unfavorable regulatory outcomes could slow or prevent commercial launch of these new revenue streams. - Corporate reorganization to a U.S. bank framework required more work and higher costs than initially projected, though management still expects long-term benefits to outweigh total costs. - Cyber threats are evolving rapidly with the adoption of AI, as bad actors now use AI to conduct more frequent and sophisticated attacks, increasing the required investment for effective cybersecurity defense.

Q: Analyst Tim Switzer asks for an update on StableCorp's QCAD stablecoin launch, how VersaBank will monetize the partnership, and if the first customer has spurred additional custody conversations.

A: The full QCAD launch is imminent. StableCorp has top-tier industry backing, but it is too early to predict the final volume of the stablecoin. Initial revenue will come from net interest margin on the deposits, which will generate ~50 basis points of net return initially since deposits will be held in highly liquid securities. The partnership has put VersaBank on the industry's radar and spurred multiple new conversations, serving as a key endorsement of its regulated status and proprietary technology.

Q: Switzer asks for an update on the RBTD tokenized deposit initiative, distribution strategy, and what value proposition VersaBank offers to U.S. community banks versus large bank competitors.

A: VersaBank has completed regulatory white papers for both U.S. and Canadian regulators, which will be submitted shortly for approval. It is in discussions with community banks, payment providers, and other financial institutions. Large banks are focused on their own tokenized deposit offerings and do not support smaller community banks; VersaBank is ahead of most competitors on regulatory development, plans to offer its technology to all community banks for a small transaction fee, and does not compete directly with these banks for their core customers.

Q: Analyst Liam Cuhill asks for an update on the U.S. SRP partner pipeline and expected long-term mix between on-balance sheet core SRP and the securitized offering.

A: U.S. SRP demand has exceeded management's initial high expectations. The Q1 2026 mix was 85% on-balance sheet core SRP, higher than the original 60% target; management expects the securitized share to increase in coming quarters, but overall demand for core SRP remains very strong. The pipeline is robust, and total new annual fundings could easily exceed the $1 billion target from already signed partners.

Q: Analyst Eli Rodney asks how growth will progress over the year after $200 million in Q1 fundings, and what the long-term outlook is for the U.S. market after over a year of operation.

A: Growth will accelerate through the year as newly signed partners begin contributing volume. In the long term, the U.S. market will become far larger than the Canadian business, driven by its 10x larger population and higher propensity for point-of-sale financing, as well as lower operating costs from more efficient deposit gathering. As the U.S. portfolio scales, overall bank efficiency will improve dramatically, driving higher operating leverage and better pricing for SRP partners.