VersaBank ($VBNK)

Good morning, ladies and gentlemen. Welcome to the VersaBank Second Quarter Fiscal 2026 Financial Results Conference Call. This morning, VersaBank issued a news release reporting its financial results for the second quarter ended April 30, 2026. That news release, along with the bank's financial statements, MD&A and supplemental financial information are available on the bank's SEDAR+ and EDGAR. Please note that in addition to [indiscernible], Versevak is webcasting this morning's conference call. [Operator Instructions]. Also, today's call will be archived for replay, both by telephone and via the Internet, beginning approximately 1 hour following the completion of the call. Details on how to access the replays are available in the morning's news release. I would like to remind our listeners that the statements of all 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, President of VersaBank. Please go ahead, Mr. Taylor.

Good morning, everyone, and thank you for joining us for today's call. With me again is our Global Chief Financial Officer, Nicolas Ospina. Before I begin, I want to remind you again this quarter that our financial results for Q2 reflect incremental noncore costs associated with our plan to realign our corporate structure to that of a standard U.S. bank framework or what we refer to as the reorganization for short. As expected, those costs amounted to $4.5 million before tax for Q2. That said, I'm very pleased to report that, as announced in a separate news release this morning, we have publicly filed our S-4 registration statement for the reorg with the SEC. This has been a long process, much longer than originally anticipated, but the filing which is a major milestone marks passage into the final stages. More on this later. During the quarter, we also incurred a noncore cash expense of $2.2 million for the write-down of intangible assets resulting from the sale of our sole physical bank branch. And finally, I will also note that we spent $0.6 million in Q2 on legal costs, specifically related to the commercialization of our real bank tokenized deposits, which was not deemed to be noncore, but is worth mentioning as an incremental cost. This was the bank's first discernible incremental spend associated with digital assets. One of the most attractive aspects of our range of digital asset opportunities is that any costs associated with bringing any of these to commercialization are expected to be de minimis, a small investment for what we expect will be meaningful near-term return in profitability. Now on to the quarter. Q2 was very much a continuation of the strong performance and growth we saw in Q1, as we increasingly benefit from the operating leverage inherent in our business model. We again achieved new records for credit assets and revenue which were up 25% and 27% year-over-year, respectively. And we once again saw strong sequential growth with increases of 6% and 5%. Q2 net interest margin on credit assets remained solid at 2.71%, up 12 basis points from Q2 last year. I'll remind you that NIM is typically a little stronger in Q2 due to favorable seasonality. The benefit of our operating leverage is clear in our numbers, adjusted or core net income meaningfully outpaced growth in both credit assets and revenue at 45%. I will add that we once again achieved these metrics with significantly higher than typical levels of liquidity at this early point in our expansion in the U.S. Growth in credit assets was again driven by continued momentum in our US SRP program which saw another $150 million in new fundings alongside steady incremental growth in CAD. A reminder here is that the second quarter typically sees lower fundings than the other quarters due to some seasonality in the business and the 150 was in line with our budget. Again, this quarter, the vast majority of our additional fundings in the U.S. were through our homegrown higher spread SRP as demand continues to exceed our expectations. With the continued ramp we expect throughout the remainder of the year, we intentionally chose not to augment the $150 million of higher margin core SRP with securitized SRP to maximize the margin for the year. As per our model, the efficiency of our U.S. operations again improved sequentially, improving from 41% in Q1 and to 37% in Q2 and keeping us on target for our goal by year-end to be in the low 20s, meaning $0.80 of every $1 of revenue is dropping to the bottom line. Feedback from our partners continues to confirm what we knew when we entered in the U.S. market that our SRP is a uniquely attractive funding solution for point-of-sale finance companies, reliable, efficient and economical. That said, we are in the precipice of taking our SRP to an entirely new level through an AI-enabled tech advancing that will enable our partners to more efficiently and cost-effectively finance their loans. Instead of our partners having to accumulate warehouse and batch their loans over a period of time, typically as much as 30 days or more, these loans can now be funded individually as they are made. This effectively eliminates the need for our partners to warehouse multiple receivables over a period of time. That is they can finance individual loans within just a few hours, reducing the overall financing costs and the need for warehouse financing. I will note that as with all our technical advances our real-time SRP capability further strengthens our risk mitigation through evaluation of partner loans underlying the SRP receivables on an individual basis. And of course, as the name says in real time. We are currently engaged in a pilot for our real-time SRP solutions with one of our major SRP partners finance it. who's CEO, Casper Wang, someone we have worked with in the point-of-sale industry for years called it a game changer. We are targeting broad rollout in the coming months and I can tell you that our other partners are chomping at the bit to get on board. I'd now like to turn the call over to Niko to review the financial results in detail. Niko?

Thanks, David. I am very excited to report another successful quarter for our bank. Before I begin, I will remind you that our full financial statements and our MD&A for the second quarter are available on our website under Investors section as well as on SEDAR and EDGAR. All of the following numbers are reported in Canadian dollars as per our financial statements unless otherwise noted. Okay. Starting with our balance sheet. Total assets at the end of the second quarter of fiscal 2026 grew 28% year-over-year and 5% sequentially to a new high of over $6.4 billion. Cash and securities were $674 million, or 10% of our total assets. That's down slightly compared to the end of Q1 2026. I will reiterate here, David's earlier comment about this being higher than our historical levels of around 7% as a result of our entry into the United States. Book value per share increased to another record of $17.15. Our CET1 ratio was 12.3%, and our leverage ratio was 7.9%, both meaningful down year-over-year and remaining comfortably above our internal targets. That year-over-year change is mainly due to putting capital to work for growth in the U.S. SRP portfolio, following our capital raise in December 2024. Now our strong growth in assets, along with continued healthy net interest margin drop total consolidated revenue to a record of $38.2 million. That's up 27% year-over-year and 5% sequentially. Consolidated noninterest expenses, excluding the onetime costs associated with the reorganization and the noncash expense resulting from the sale of our sole physical bank branch were $20.8 million compared to $16.6 million in Q2 last year and $19 million for Q1. Including these costs, noninterest expenses for Q2 were $27.5 million. As David noted, noninterest expenses for Q2 also including $600,000 in legal costs related to the commercialization of real bank tokenized deposits. As a reminder, [ DRT Cyber ] expenses are included in the consolidated noninterest expenses and totaled $2.5 million for the quarter, more or less in line with last year. Reported net income was $7.5 million, and consolidated earnings per share was $0.23. Excluding the onetime cost mentioned previously, consolidated adjusted net income was $12.4 million or $0.39 per share with adjusted net income increasing 35% year-over-year and 2% sequentially. Again, this included approximately $600,000 tokenized deposit commercialization costs. Now looking at the income statement on a segmented basis, Revenue for the Canadian banking operations was $28.1 million, up 10% year-over-year and 2% sequentially. I will remind you that the bank's corporate expenses flow through the Canadian Banking digital segment and as a result, reported net income includes those reorganization costs and the intangible asset write-off. Net income was $4.1 million. However, that number is dampened by the $4.9 million after-tax impact of the onetime cost associated with the reorganization and the noncash expense resulting from the sale of the branch I described earlier. Revenue for the U.S. banking operations was $7.9 million, a 17% increase sequentially, primarily due to the ramp-up in the U.S. SRP. That drove a 28% increase in net income sequentially to $3.6 million as we see the U.S. operating leverage take effect. Digital Media revenue was $749,000 with net income of $351,000 driven by higher client engagements and lower operating expenses. Within DRTC, the cybersecurity service component generated revenue of $1.9 million, level with Q2 of last year. Net loss was $508,000 compared to net loss of $652,000 last year. Our credit asset portfolio grew to a new record of just shy of $5.7 billion at the end of Q2, driven again by our structured receivable program, which increased 32% year-over-year and 7% sequentially to $4.7 billion. Our SRP portfolio represented 83% of our total credit assets at the end of Q2. That's level with Q1. Our multifamily residential loan and other portfolio increased 2% year-over-year and 6% sequentially to $1 billion as we continue to transition some of our higher risk-weighted to lower risk-weighted multifamily residential loans as part of the bank's strategy to capitalize on opportunities for lower risk-weighted trade assets with higher return on capital and continued growth in the SRP portfolio. As a reminder, our multifamily residential loans and other portfolios, primary business-to-business mortgages and construction loans for residential properties. We have very [ little ] exposure to commercial use properties and our conservative underwriting and diversified lending strategy provides insulation from the particularly challenging real estate markets in Greater Toronto area and other major centers in Canada. Now turning to the income statement for our digital banking operations. Net interest margin on credit assets that is excluding cash and securities was 2.71%. That was 12 basis points or 5% higher on a year-over-year basis. As David noted, our Q2 net interest margin are seasonally stronger due to fewer days in the quarter. Overall net interest margin, including the impact of cash and securities and other assets, was 2.33%, an increase of 4 basis points year-over-year. Overall, net interest margin was again somewhat dampened by our higher-than-typical cash balances. This still remains among the highest of the publicly traded Canadian fairly licensed banks. Finally, our provision for credit losses in Q2 continue to be de minimis as a percentage of average credit assets at 3 basis points. This was down from 5 basis points in Q1 primarily due to changes in the forward-looking information used by the bank in its credit risk models. I will now turn the call back to David for some closing remarks. David?

Thanks, Niko. First half of fiscal 2026 has unfolded very much on plan for our core digital banking operations with additional strong progress on several other initiatives that we expect will drive meaningful incremental shareholder value. Accordingly, our very positive outlook for the remainder of 2026 remains firmly intact. In fact, we now see potential additional earnings upside this year. We have a strong momentum in credit asset growth. We remain on track to achieve our target of at least USD 1 billion SRP additions. Our U.S. banking operations are already generating more than 20% of our total revenue. A quick note on Canada. Our SRP continues to be resilient in the face of sluggish Canadian economy. In fact, just last week, it was reported that Canada had slipped into a technical recession. This resiliency is very much the result of our focus on home, HVAC and renovation space as well as our intentional strategy to partner with all of the best point-of-sale lenders in the country. And I am pleased to report that just last week, we added a new partner who is a very well-known name in the consumer auto sales space. The planned rollout of our real-time funding capability in the coming months is expected to drive significant additional growth with both existing and new clients. So while we had initially expected growth in our Canadian SRP of low to mid-single digits in 2026, we are now potentially looking at something meaningfully higher. Moreover, in both Canada and United States, we believe that our real-time funding capabilities could capture significant share from securitization markets. Certainly, earlier discussions we have with partners and prospective partners in the market have been very encouraging in this regard. The second half outlook for net interest margins also remains favorable. We expect NIM to be relatively consistent with the start of this year with some potential upside. We continue to expect core noninterest expense to be relatively flat to last year with some opportunities for year-over-year cost savings. I'll remind you that about $10 million of our annual costs are incurred by our cybersecurity business that we are in the process of divesting. As noted earlier, we have sold our sole physical bank branch that we acquired as part of our entry into the United States in 2024. While the financial impact of the sale is de minimis, I will note that it will result in cost savings of approximately USD 900,000 or CAD 1.2 million. Now on to the initiatives that we expect to drive additional value beyond the expected strong growth in our digital banking operations. As I mentioned at the outset, we have publicly filed our S-4 for the reorganization. It details our plan to realign our corporate structure to that of the standard U.S. Bank framework with the creation of a U.S. domiciled holding company, [ Versa Bancorp ], which becomes the parent of each of our Canadian and U.S. operations. The S-4 has been confidentially reviewed and remains subject to additional review by SEC prior to being declared effective by the SEC. We intend to move forward with the shareholders' matters expeditiously in tandem with the other regulatory processes. As this initiative has protracted, so have the costs. And I will note here that expect to incur an additional $2.5 million in costs in Q3. We remain confident that the benefits in terms of shareholder value period by this initiative will far outweigh the investment we have made over the past year or so. At the end of the day, the cost of reorganization is an investment in the future shareholder value. Our multiple paths to commercialization of our digital asset technology are increasingly coming into focus. And they are expanding with new opportunities emerging as both the unique advantages of our reversible technology combined with our status as a nationally federally licensed bank in both Canada and the United States, becoming more widely [indiscernible]. We are now generating incremental revenue from both stable coin custody services for CAD, Canada's first regulatory compliance stable coin. Our customer Stablecorp when investors include [ Circle ] and [ Kraken ] is highly respected in the industry and are rapidly moving their business plan forward with a listing on Kraken and announcement of the first on chain Canadian-U.S. dollar settlement with CAD Circle's stable FX. We are proud that our proprietary VersaVault technology is playing a critical role here. But this is really just the proverbial tip of the iceberg for our technology. The industry is moving very quickly. We are leaders in the space, and the market is increasingly organizing the undeniable advantage of working with a nationally licensed bank. Increasingly, we are seeing new opportunities emerge on the tablecoin side of things. These are distinct from but complementary to the multiple opportunities we have around tokenized deposits. We have developed our technology and formulated commercial strategies in the context of the evolving regulatory environment and as a national suddenly licensed bank in both the United States and Canada with market-rate technology, we are uniquely positioned to capitalize. With that, I'd like to open up the call to questions. Operator?

[Operator Instructions]. Your first question comes from Joe Yanchunis with Raymond James.

So you've now been receiving the QCA deposits under the Stable Corp relationship. Can you provide any color on the current level of deposits? How balances have trended since launch? And what milestone should we watch for to gain adoption or the gauge adoption over the coming, call it, 6 to 12 months?

Well, it's -- today, I think the balances are only in the CAD 70,000, 80,000 range. I think the impetus for that and those balances to increase substantially into the millions is a use case for the QCA. And I think most -- we press released as before, we think the most apparent use case is facilitating a seamless foreign exchange with a stablecoin in the United States. U.S. stablecoin versus a Canadian stablecoin. And I know that's in the works. I know that's what folks are looking at. That's a natural application for the stable points. And of course, we're offering as a federal bank on both sides of the border. So we're keenly interested in that happening.

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

Well, first of all, the [indiscernible] can clearly, I don't at this point apply to us in that they're not in place yet, and we're offering as a national bank in the United States, so that is not an impediment for us. However, it may turn out. Eventually, if it does come into play, our bank will comply. But presently, we're operating it as we are always able to as a national bank. So that's not an impediment at all to us launching One of the things we were looking for was the FDIC to confirm the digital representations that deposits would indeed be insured and they have. So that's a big deal. So right now, Joe, we're actually working with partners on the rollout. Technology is built. We're just working with some partners to be able to start pushing money through on a pilot project, and I expect as it does in can, it will work wonderfully, and then we'll roll it out. So no legal impediments, no impediments with respect to FDIC insurance and technology is all built and tests in Canada and we're just working with some partners that I'm sure everybody will recognize their names when we roll it out.

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

No, we wouldn't have for the nonobjection when we're -- until we're ready to commercialize and have partners lined up on the other side. So that's a step, of course. And yes, will last for a nonobjection when we're ready to roll it out with one of the -- or a few large partners.

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

Yes. Yes, if you thought of it that way. The gaming item is finding suitable partners. And I think we have a few lined up there keen to do this with us. So once we have the suitable partner, then we'll push token amounts of money through the system and demonstrate to the regulators on -- on the soft side of the border, that it all works fine this as it did on the north side of the border when we first pushed out deposit tokens.

Not being different solid program to test the plumbing that you announced last year, I think it was like last September?

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

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

Consumer did it once before [indiscernible]. We've done it with simulations here in the States. I wouldn't take more in a month.

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

Yes. The capital levels that we presently have, we can achieve our budget. And I think we publicly stated that we're looking for about $1 billion in additional SRP in the United States. So we have sufficient capital to do that and more. But just a little bit of a warning. It's kind of a good thing is when we announced the real-time purchase of receivables, a huge amount of enthusiasm for that product. There's an avalanche of deals of -- likely to come our way. And that could soak up our capital pretty rapidly. We're like billions and billions could easily flow in. The idea of being able to purchase the loans and leases are at least what we call it, invest in the cash flow derived from the loans and leases, virtually real time is a tremendous breakthrough. Those that are have been content to securitization batching, taking some time to get their money are eagerly awaiting getting their money right away. So that very well could suck up our capital pretty rapidly. I hope it does. That means that we're making a lot more money. [indiscernible] one in [ St. Pure ] and [ St. Pete's], right?

[indiscernible].

Next question comes from Timothy Switzer with KBW.

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

Yes, we have done the analysis. I can't -- I'll give it to you though of my head offline, I can give you more precise figures. But generally speaking, it means that the equity that these point-of-sale companies have is probably cut into about half. So the amount of equity they require to run their business and support lines of credits and warehouse facilities is probably about half. And the liquidity that they need is down to some tiny fraction because they're getting their cash immediately. So there are -- the reduction in liquidity and say on an average cut their equity in half would mean a double a return on equity and then some on top of that because we don't have all the expenses associated with warehouse receivables and commissions and accounting bills and lowers bills and all those things that eat into their profit. So we help them on both sides, reduce the amount of equity that they need substantially and we trimmed back all these miscellaneous expenses they have with having to maintain a certain amount of liquidity to afford the batching. -- is a hell of a deal. I mean I don't need to -- but lines, I don't need to be on the phone for more now, let's say, 2 minutes on a point-of-sale partner [indiscernible].

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

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

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

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

Well, we have the branch savings we have coming up some initiatives that we have on optimization of general cost and administrative initiatives that will optimize our expenses at the end of the day. They are being put in place for the last 2 quarters, and we expect to see some results in Q3 and Q4.

Even though we allocate a certain moment, call it, sort of noncore expenses, there's still a lot of miscellaneous expenses associated with rolling out in the United States and this reorganization, travel expenses, hotels, all that stuff that's extra associated with the rollouts and the reorganization that don't get precisely allocated to noncore. We also, as Nico's alluding to the [ rate ], we also sold a holding for branch to back to [ sterns ]. And there's a fair amount of savings, they're strengthening objects, know it's one branch. It was at least 900,000 in the U.S. a year on that one branch repositioning it back to the owner of the previous one.

Nice. Yes. That's some good savings. And then the last one for me. The provision expense has stepped down a little bit the last 2 quarters, especially compared to '25. And I think a lot of it was kind of driven by growth or provision for the acquired loan book. Where should we expect that to move going forward? Can it stay closer to the current level now?

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

[Operator Instructions] Your next question comes from Eli Rodney with [ Open ] Research.

Congrats on the quarter. On the real-time SRP pilot, obviously, it sounds like a fantastic deal for your partners and you're targeting a rollout in the coming months. I just want to put maybe some goalposts around what exactly that means? Are you thinking this is a Q3 or Q4 commercialization? Or is it more of a fiscal '27 story?

Well, we're targeting -- I'm going to be bold here. We're targeting July 1 for the rollout of the commercialization. And our partners are keenly awaiting that, of course, because there's huge savings for them. So that's the pin we've got right now July 1. And the first phase of this program is purchasing or investing in the receivables twice a day, which to our partners is good enough. It could stay like that forever. -- twice a day is better than once every month. So a huge breakthrough. But going forward, you'll probably see us get down to nanosecond. So I'd like to see it that we are buying them instantaneously and really helping our partners so that they can do what they do best, i.e., credit adjudication, interface some of their borrowers and with wonderful iPad apps and all that stuff, and we can be their funder of real time. Also, it lends itself to the point-of-sale partners that operate lines of credit. So yes, July 1 is the date. You can hold me to that. I'm holding the rest of my team to that.

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

Well, actually, you'll see some new partners come onboard because they're kind of waiting for this. But also just the existing partners, let's just say we got 50% of their flow right now. I'd say there's no good reason why we wouldn't get 100%. Some of them were on a 1/3 of their flow. I'd say we get the lion's share. So there's a lot of growth just due to us taking more market share than signing up new partners, although we've always just signed new one in Canada. We've got a bunch going on in the United States, too. But the real fast growth will come out just getting more of a bite out of their business because, obviously, our product offering is way, way more attractive than batching them up in receivables and spreadsheets and mailing them in, I'm exaggerating a little bit. But this is what people dream of. They want to do what they want. They want to make the loans. They want to be good customer service, so want provide economical interest rates and [indiscernible] to deliver to our partners. So I'm expecting a big chunk of market share growth, particularly in Canada.

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

Regardless. Yes, we've set that target prior to this becoming a reality. So this is all on top of that. And it begs a question, if indeed there is the [ alliance ] so that like we're seeing. Thankfully, we designed our software to be able to share these SRPs with other banks, other community banks, other funds and manage it for them. So it's -- we decided that originally, and we actually did speak to the regulator about that some time ago. So that if we do or if we're overwhelmed with new [ USP ] assets, we can start giving them up to others that saw in where they're catching it. And others that maybe have an abundance of funding and community banks to our United States that would like a nice clean administered asset for them with almost no loan loss -- well, no loan loss in our history, very low risk, nice yield. So we're designed to do that, and we probably end up having to do that because I -- the response has been overwhelming the enthusiastic

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

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

Awesome. And then I guess flipping to that U.S. target. So that leaves roughly $650 million to hit the bill in H2. Obviously, the mix shift has been predominantly SRP versus securitization. You made a comment on the beginning of the call that you can kind of flex that securitization as needed and given that you're seeing a lot of demand and pipeline for DRP. It's just not needed at this time. And obviously, the SRP is higher margin. So through the back half of the year, is it fair to say that the sort of predominantly SRP growth in the U.S. will continue? Or will securitization be an important piece as well?

Well, I'd say that we call homegrown SRP, sub-row securitization. I would say right now, that would be predominantly what it is the purchase suritizations are same sort of credit quality, and the company with a lower risk weighting 20% usually, depending on the bonding. So that's -- they're good, except for -- it looks like we'll have a work out for us accommodating the demand that the real-time purchase program is bringing in. So it may very well be our original prediction of having, say, $650 million of the $1 billion and the homegrown SRP might go higher because -- just because of the demand.

Well, that's exciting. Looking forward to tracking that closely. Last one for me is just kind of a higher-level frame on Canada. Obviously, you mentioned some of the challenges here at home for us. And I guess that plays on 2 fronts for you. One, being the lending environment. So any additional color you could give there with SRP growth and your ongoing transition to multifamily, CMHC insured multifamily. And then also on the lit deposit side, that moved quite nicely higher sequentially. And there was recent data with insolvencies kind of around post 2008 [indiscernible], so what are you seeing as far as trajectory on the lit deposit side as well?

Well, don't want to boast about it because what it means when our insolvency deposits grow as rapidly as they are, it means bad things for Canada for particularly Canadian consumers having a really rough go -- but for us, that's why we built that program to be a counterbalance to a recessionary time, and it's doing well. It would be a record high, of course, it's a -- we're sort of the leading indicator in that the more accounts we open, the empty buckets fill up, and we're opening a lot of accounts now. So yes, not good for Canada. Years ago, I mean, about 3 or 4 years ago, you clot my quarterlies. I thought that the VTA Vancouver market, charter health market was too risky a place for us to participate. So we, of course, moved out of that -- those 2 markets. And now there's a collapse of some people say 40% in value. So fully [indiscernible], that leaves consumers in a really tough spot in that they're looking at double the mortgage payment as the interest rates have gone up and their outs dropped by 40%, rock in a hard place. Thankfully, a few years back, we pulled out of that. With respect to our SRP program, which is mainly home improvement, HVAC and insulation trying to reduce their utility bills by more efficient for instance, and the like. That business is still clicking along. But considering Canada's top spot, I would even expect that to slow write-down the new business, but market share should increase quite dramatically just because the use the real-time purchase program is so attractive. It's just outstandingly attractive. I've had an industry leaders say, this is a revolution, David, Well, it is. It is indeed a revolution in what point-of-sale companies have dreamed about. And it's made possible why using AI. Folks. I'm sure -- I'm sure you hear -- I've heard a lot about AI and what it can do for banking industry. So this is a real-time application of AI. You couldn't possibly assimilate that data with the humans, we have some really smart sharp humans is resumed. Nobody can do it anywhere near us [indiscernible]. That's our model. We built it ourselves, of course, about 3 years back, 3 years back, we did it. So in Canada, holy smokes, about I'm not very pleased about what's going on in the GTA and VTA. Really feel sorry for the people. But from our perspective, we'll just take some market share, and we'll be going probably pass me have ever grown. Sorry, and on now to [ their ] Canadians. Hopefully, as light at the end of the tunnel. But it's a rough time when your house has dropped in value dramatically and your mortgage payments likely doubling.

Your next question comes from Joe Yanchunis with Raymond James.

Setting back in the queue here. I just have a couple wanted to just hit on. So starting with DRTC, -- can you provide an update on the divestiture process? Where do you stand in discussions potential buyers and whether you expect a transaction to occur before September 2026?

Well, sure, good question. And tactically, we've put on pause the divestiture. And there's things in the background that are not ready to publicly announce, but was a good tactical reason to put the brakes on the sale process. KBW did a fantastic job for us. I think they'll end up about 100 eager bidders but there was something else in the background that I -- that is his best we just put the brakes on the sale process just for a while.

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

Yes. Yes, we have. Certain aspects of [ DRTC ] are permissible, the one that appears not to be permissible is the penetration testing aspect that we do with the component DBG, Digital Boundary Group. The real deposit tokens and that sort of stuff. But first of all, it seems to be quite permissible. But yes, we have gone back and asked for a little extension in order to sort out these tactical things that I think benefit the entire banking industry in the United States, in particular, when we have state-of-the-art cybersecurity for a small [ FIs ], some large FIs here in Canada. We provide those services and the largest retailers. But there's an onslaught of cyber criminals out there. And there's certain tactical things I thought maybe put a little pause on it to what we could do on that front.

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

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

Okay. I appreciate that. And then just one more kind of housekeeping question for me. Within that $605 million of U.S. SRP assets at quarter end, what was the mix between your legacy offering and securitization.

Yes, I have that handy. Well, we had said we expected to put on about $1 billion in U.S. SRPs and 650 was the home grown and about 350 was the purchase, that was the original plan. Now we're thinking the $650 million could be a lot higher because of that demand that's slowed mainly through the advent of the real-time purchases.

Okay. A little more precise a little more precise, Joe there. We have around for the securitized portion around 18% of the $650 million that we have currently will discuss more of line.

Okay. Perfect. That was the number I was looking for.

Okay. Sorry, Joe. Thank you, Nico. It's a good thing to have your CFO online listening when the CEO is spout off numbers top of his head. No further questions, operator?

No.

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

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