Earnings Call Transcript - VBNK Q1 2026

Operator, Operator

Good morning, ladies and gentlemen. Welcome to VersaBank's First Quarter Fiscal 2026 Financial Results Conference Call. This morning, VersaBank issued a news release reporting its financial results for the first quarter ended January 31, 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 that in addition to the telephone dial-in, VersaBank is webcasting this morning's conference call. The webcast is listen-only. For those participating in today's call by telephone, the accompanying slide presentation is available on the bank's website. Also, today's call will be archived for replay, both by telephone and via the Internet beginning approximately 1 hour following the 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 the 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. Actual results could differ materially from our expectations due to various material risks and uncertainties associated with VersaBank's businesses. Please refer to VersaBank's forward-looking statement advisory in today's presentation. I would now like to turn the call over to David Taylor, President of VersaBank. Please go ahead, Mr. Taylor.

David Taylor, President

Good morning, everyone, and thank you for joining us for today's call. With me for the first time is our recently appointed Global Chief Financial Officer, Nico Ospina. Nico joined us from Raymond James U.S. Investment Banking Group, where he was a member of the team that has been so supportive of our U.S. capital market activities. He knows our business and our industry well and is already having a meaningful impact on our organization. John Asma, who previously served as our CFO, will now head up our Canadian banking operations, where his many years of experience with the bank across multiple executive roles will support the continued expansion and enhanced efficiency of our Canadian banking operations. I'd like to thank John for his excellent contribution as CFO over the past couple of years. Before I begin, I want to remind you, as I did last quarter, that our financial results for the first quarter reflect the continued, although significantly lower costs associated with our plan to realign our corporate structure to that of a standard U.S. bank framework. Those costs amount to $1.5 million before tax in Q1, which was down significantly from the fourth quarter. Also, a quick note about some updated terminology. As part of the broader reorganization, we have changed the name of our receivable purchase program to structured receivable program. This is a change in label only. The program itself has not changed in any way. Now on to the quarter. Q1 was a great start for fiscal 2026, unfolding very much on plan and highlighted by new records for credit assets and revenue, which were up 23% and 31% year-over-year, respectively. And notably, the credit assets revenue grew 5% and 4% sequentially, clear evidence of the momentum in our business. But most importantly, as per the fundamental tenet of our business model, we are seeing the benefit of operating leverage really kick in. Most of this was driven by the acceleration of our U.S. structured receivable program portfolio. Finally, I will note, as I have in the last several quarters, that we achieved these metrics with significantly higher than typical levels of liquidity at the early point of our expansion in the U.S. Looking a little closer at our structured receivable program. After achieving and, in fact, surpassing our 2025 target for our program in the United States, we completed more than USD 200 million in additional fundings in Q1. Notably, the vast majority of the Q1 fundings were through our higher spread core SRP with only a small contribution coming from our securitized offering. Importantly, for Q1, we saw the efficiency of our U.S. operations surpass those of our Canadian banking operations. Our U.S. operations have the advantage of both less expensive deposit funding and a smaller team needed to manage and grow the business. With substantially all our cost structure in place, we will see meaningful increases in efficiency as the year progresses, moving into the low 20% range through the year-end. We are well on track to achieve our target of adding at least USD 1 billion in fundings in fiscal 2026. That's more than a threefold increase from 2025. While we can achieve this with our existing SRP partner relationships, we are continuing to cultivate new potential partnerships to drive additional potential upside this year. I'd now like to turn the call over to Nico to review our financial results in detail. Nico?

Nicolas Ospina, CFO

Thanks for the kind introduction, David. Glad to be here on my first call as global CFO of VersaBank. It is certainly a very exciting time as we enter a year defined by strong growth and meaningful improvements in operating leverage. Before I begin, I will remind you that our full financial statements and MD&A for the first quarter are available on our website under the 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. Starting with the balance sheet, total assets at the end of the first quarter of fiscal 2026 grew 24% year-over-year and 6% sequentially to a new high of over $6.1 billion. Cash and securities were $729 million or 12% of our total assets, up slightly compared to the end of Q4 2025. I would like to mention here David's early 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 $16.93. In terms of our capital, our CET1 ratio was 12.8% and our leverage ratio was 8.2%. We are both remaining above our internal targets. Our strong growth in assets drove total consolidated revenue to a record of $36.5 million, up 31% year-over-year and 4% sequentially. Consolidated noninterest expenses, including one-time costs associated with the reorganization, were $20.5 million compared with $15.7 million in Q1 last year and $23.9 million of Q4 last year. Excluding these costs, noninterest expenses for Q1 were $19 million. As a reminder, DRT Cyber expenses are included in our consolidated noninterest expenses and totaled $2.8 million for the quarter. Reported net income was $11.1 million and consolidated earnings per share was $0.35. Excluding the after-tax expenses associated with the reorganization, consolidated adjusted net income was $12.2 million or $0.38 per share, with adjusted net income increasing 49% year-over-year and 15% sequentially. Looking at the income statement on a segmented basis, revenue for the Canadian banking operations was $27.6 million, up 16% year-over-year and level sequentially. I will remind you that the bank's corporate expenses flow through our Canadian Digital Banking segment, and as a result, reported net income includes those reorganization costs. Net income was $8.7 million. However, that number is dampened by the $1.1 million after-tax impact of the reorganization I described earlier. Revenue for our U.S. banking operations was $6.8 million, a 30% increase sequentially, primarily due to the ramp-up of our US SRP. That drove a 40% increase in sequential net income to $2.8 million as we see the U.S. operating leverage take effect. Within DRTC, the cybersecurity component generated revenue of $2 million, level with Q1 last year, and a net loss of $630,000 impacted by higher operating expenses related to the onboarding support costs for new cybersecurity offerings. Digital Meteor revenue was $528,000 with net income of $179,000, driven by higher client engagement and lower operating expenses. Our credit asset portfolio grew to a new record of $5.33 billion at the end of Q1, driven once again by our structured receivable program, which increased 29% year-over-year and 9% sequentially to $4.4 billion. Our SRP portfolio represented 83% of our total credit assets at the end of Q1, up from 80% at the end of Q4 2025. Our multifamily residential loans and other portfolio decreased 1% year-over-year and 8% sequentially to $0.9 billion as we transition some of our higher risk weighted to lower risk-weighted multifamily residential loans as part of our bank's strategy to capitalize on opportunities for low-risk-weighted credit assets with higher return on capital and to continue growth in our SRP portfolio. As a reminder, our multifamily residential loans and other portfolio is primarily business-to-business mortgages and construction loans for residential properties. We have very little exposure to commercial use properties. Now turning into our income statement for our digital banking operations. Net interest margin on credit assets, that is excluding cash and securities, was 2.64%. That is 28 basis points or 12% higher on a year-over-year basis and level sequentially. Overall, net interest margin, including the impact of cash securities and other assets was 2.25%, an increase of 17 basis points year-over-year and down slightly from the fourth quarter of 2025. And again, it is dampened by our higher than typical cash balances. This still remains among the highest of the publicly traded Canadian federally licensed banks. Our provision for credit losses in Q1 continued to be de minimis as a percentage of average credit assets at 5 basis points. This was down from 11 basis points from Q4 2025, primarily due to changes in the forward-looking information used by the bank in its credit models. I now would like to turn the call back to David for some closing remarks. David?

David Taylor, President

Thanks, Nico. The first quarter of fiscal 2026 sets us up for a very good year. In fact, what should be by far the most profitable year in our history. At the risk of overusing the term, we have strong momentum in our core digital business and in the United States specifically, where we have significantly greater operating leverage. Importantly, all the elements that support the very positive trajectory, the strong growth that I have discussed in our last call have not changed. We have multiple drivers of our credit asset growth. The U.S. SRP growth is accelerating, and we're on track to hit our fiscal 2026 target of $1 billion in additional assets. We expect to continue to see decent growth in Canada and expect our growth in CMHC loan book in Canada also. And we have already seen the incremental contribution of new revenue streams generated by our CMHC allocation fees. We expect net interest margin to be relatively flat to the higher levels of last year with some upside potential. We expect 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 last year were incurred by our cybersecurity business that we're in the process of divesting. 2026 is also a year in which we are on track to realize additional value from two other initiatives. First, we are making steady progress on our reorganization to a standard U.S. bank framework that we started last year. Most of this work is happening behind the scenes, but we do expect to be able to share some noteworthy updates in the near future. While we are very comfortable with where we are, there has been more work here than initially thought by our external legal counsel and auditors. So while Q1 costs for the reorganization were more or less in line with the additional costs we thought we would have this year, we expect to incur an additional cost of $4 million to $4.5 million in the second quarter. We still expect the benefits and shareholder value creation to meaningfully outweigh the aggregate cost of this project. Second, the divestiture process of our cybersecurity business is also steadily moving forward. It's still our goal to have this completed by the end of the summer, hopefully earlier. Completion of the sale will provide meaningful additional regulatory capital to support our growth and obviously well more than absorb the additional costs associated with the reorganization. We continue to execute and deliver strong growth in our core digital banking operations. We are simultaneously moving steadily forward on our digital asset strategy. It was just a year ago that we reengaged on this opportunity. In my more than four decades as a banker, I've never seen the banking sector, which has historically been very conservative, move so quickly to adopt an emerging technology. We now have a separate investor presentation on our website specifically dedicated to our digital asset opportunities. This is also partly due to the importance and magnitude of this opportunity for us, but also due to the confusion that exists around how the opportunity in this space is evolving. As a reminder, we have two parallel commercial paths. Both are based on our proprietary VersaVault technology, which we believe due to our unique approach is the most secure digital asset technology available today, proven and validated by SOC 2 Type 1 certification considered to be the gold standard in data security. The first and largest opportunity is our proprietary real bank tokenized deposits or RBTDs. Tokenized deposits are very rapidly gaining traction as the industry increasingly recognizes the many advantages of these being an actual bank deposit, just like any other bank deposit. In effect, we are simply replacing our check-clearing system with state-of-the-art blockchain technology. For bank customers, this means they will receive interest, and we expect, subject to confirmation by regulators, that they will enjoy the comfort of conventional deposit insurance. Announced U.S. stablecoin regulation prohibits both. For us banks, it means we can use these deposits for lending, just like any other deposit. Stablecoin funds must be parked with a third-party and liquid assets like T-bills. The integrated U.S. and Canadian pilot programs for our RBTDs that we initiated last fall are proceeding well on both sides of the border, although it's taking a little longer than I originally anticipated. The second is the extension of the deposit services we are already providing on both sides of the border as a national federally licensed bank to stablecoins. While we firmly believe that bank-issued tokenized deposits have a number of key advantages over stablecoins, stablecoins have a role to play in the financial ecosystem and, being opportunistic as we are, we have a strategy here as well, providing custody services to stablecoin issuers. This is not new for us. It's simply an extension of the custodial services we have provided to others for years, just a new market segment and using our VersaVault technology. Just a couple of days after the end of the quarter, we announced our first stablecoin custody customer, Stablecorp for QCAD, Canada's first regulatory compliant stablecoin. Stablecorp is a pioneering leader in the stablecoin space backed by an investor group who is a who's who of the leading participants in this space, including Coinbase, Circle, DeFi Technologies, and FTP Ventures. We see their choice of VersaBank as custodian for QCAD as a massive endorsement of our technology and our experience as well as confirmation of our belief that the best choice for stablecoin custody is a national federally licensed regulated bank. It's difficult to provide any guidance on the financial impact of our relationship. It will very much depend on the growth in the issuance of QCAD, but one would only look at the U.S. market where the leading stablecoins in aggregate are valued at hundreds of billions of dollars. With that, I'd like to open the call to questions. Operator?

Operator, Operator

Your first question comes from Tim Switzer of KBW.

Timothy Switzer, Analyst

So first one I have is on the stablecoin custody opportunity you guys have talked about. Is there any update you can provide on, I guess, the progress Stablecorp has made on launching the coin? And do you have any kind of idea or expectations in terms of the volume the coin could reach and their aspirations there?

David Taylor, President

I would say the full-blown launch is imminent. We are actively working with Stablecorp every day. It's difficult to predict the potential size at this point. Their partners are leading names in the industry. In the U.S., Circle or USDC has approximately $70 billion held with BlackRock, based on public information. In Canada, it's about 10% of that size. So I'm not sure if it will scale up proportionally to something like that, but it’s still early days. They have the right partners and the right product, and it appears that Canada is eager to move forward and support it. We will have to be patient, but it shouldn't be too much longer before we see more progress.

Timothy Switzer, Analyst

Okay. And could you maybe provide some details in terms of how you guys plan to monetize this? And what are the various revenue streams you expect to generate through the Stablecorp partnership?

David Taylor, President

For the time being, our earnings will primarily come from the traditional net interest margin on the deposits. Since we lack experience with the stickiness of these kinds of deposits, we will invest in highly liquid securities. Therefore, we might earn about 50 basis points net interest margin on the deposits. While it's not extremely profitable, it does add some incremental profit to the bank.

Timothy Switzer, Analyst

Got it. Yes, that makes sense. Since you signed a partner, has it allowed you to demonstrate the technology you have? Has this led to more discussions regarding VersaVault and custody in Canada or the U.S.?

David Taylor, President

Yes, it has definitely increased our visibility in the industry. I've engaged in numerous discussions with key players, likely as a result of that announcement. Being selected as the custodian by a reputable company like Stablecorp, along with their esteemed partners, serves as a strong endorsement of our cutting-edge technology. Additionally, as a national bank in the U.S. and a Schedule I bank in Canada, we are an ideal choice for deposits.

Timothy Switzer, Analyst

Yes. Yes, I get you. Okay. And then on the other products you guys have, the real bank deposit tokens, any update on, I guess, like distribution strategy, potential partners? Like have there been any conversations with the big payment providers or payment rails, credit card networks, other banks like for maybe white labeling? Can you provide an update there?

David Taylor, President

I would say everything mentioned earlier is relevant. Our product is quite popular among banks, especially community banks that might lose deposits to stablecoins. We have been actively engaging with regulators on both sides of the border to create a detailed white paper framework for them to examine. This will help them understand the legal and mechanical aspects of our product. We are nearly finished with this; we have separate versions for Canadian and U.S. regulators, clearly outlining the legal and mechanical components. We expect to deliver these documents to regulators within a day or two, as their approval is crucial for us to move forward. Once we have their endorsement, I believe our product will attract interest just like our other offerings. We have many parties eager to collaborate. I’ve communicated to regulators in both countries that I don’t intend to keep this technology to ourselves. I’m willing to share it with other financial institutions, as collaboration benefits the whole banking sector. While we may seek to earn some royalty from it, I truly believe sharing this technology is in the best interest of the industry.

Timothy Switzer, Analyst

Got it. That makes sense. And one last follow-up. You mentioned the community bank showing some interest, and I assume that's in the U.S. You have a lot of other competition in the United States that are probably better known to those U.S. banks rather than VersaBank. I mean, JPMorgan, Citi, some of the nonbank stablecoins, SoFi USD recently launched. Like what are the conversations? What's the value proposition you offer them on why they should maybe choose one of VersaBank's digital deposits rather than a competitor?

David Taylor, President

Well, regarding the large banks that are effectively distributing their tokenized deposits, I can't speak for them, but historically, they haven't been very inclined to assist small community banks in becoming competitive. Naturally, they're focused on their own customers and are doing a great job at that. The community banks, which number around 4,400, rightly understand they won't be receiving much help from the larger institutions, but they will receive support from us because we are part of their community. Based on our discussions with various regulatory bodies, it seems we are quite advanced compared to others, as the questions I’m receiving suggest they are unfamiliar with our methods. While others may be discussing their plans, they are not at the forefront; otherwise, I wouldn't be getting the inquiries I am from regulatory bodies on both sides of the border.

Timothy Switzer, Analyst

Got you. Yes. I mean it probably helps that you're not necessarily competing directly with a lot of these community banks' core businesses...

David Taylor, President

Yes, we have no intention to do that at all. We believe we have an excellent product for the banking industry that eliminates outdated check clearing systems. It's beneficial for everyone involved. We have a slight first-mover advantage, and other banks will likely want to catch up quickly. If we can collect a small transaction fee from our peers at other community banks, that would be an added bonus. The banks I’m speaking with expect to pay a modest fee, but we are not trying to be excessive. It might sound altruistic, which feels unusual for a banker, but we believe in contributing positively to the industry. This is a remarkable technology that will benefit everyone.

Operator, Operator

Next call comes from Liam Coohill of Raymond James.

Liam Coohill, Analyst

This is Liam on for Joe. I appreciate all the color on the crypto side, but I'd like to flip over to the U.S. structured receivable program quickly. Could you discuss the pipeline of partners there and your expectation for the mix between legacy portfolioing and securitized offering?

David Taylor, President

Well, we started out with sort of lofty expectations. And I think most people quite rightly were skeptical about what our success would be. Strangely enough, a lot of that skepticism came from Canada saying, 'Gee whiz, U.S. is a huge market. Why do you think that your product would be well-received?' It's actually exceeded our expectations, which we're lofty to start with. We've got tremendous interest in our on-balance sheet securitized receivable product, as you saw by the results. It's almost as fast as we can sign them up; we'll be adding to it. So with the mix, this quarter, it was about 85% of on-balance sheet securitized receivables. We had originally estimated to be more like 60-40 still in favor of the on-balance sheet. It may move to that number a little later on, but the pipeline is very strong. It's an economical and reliable funding source and well proven in Canada, and the folks that have signed up with us here in the States seem to have all kinds of volume for us. So good numbers. We've said publicly we expect to put $1 billion on by the end of the year. It could get well over that figure from just a few partners we've already signed.

Liam Coohill, Analyst

No, that's great color. And quickly, I appreciate the update on the sale process of DRT Cyber. But I am curious how you think about recent concerns surrounding AI potentially disrupting the cybersecurity space.

David Taylor, President

We have our own state-of-the-art AI module that we developed a few years ago when AI began gaining popularity. I recently told someone that it is fantastic and represents the future. However, we must recognize that malicious actors will also utilize this technology. It's a continuous challenge that requires us to always improve. DRT Cyber has a skilled team of about 60 to 70 experts, some of whom we brought in from around the world due to their legendary status in this field. We believe that if you're not protected by DRT Cyber, you are not secure. This is not arrogance; it reflects the rapid changes in the world and the fact that those with ill intentions are equipped with advanced tools as well. It's crucial to have a top-notch team to ensure that your systems are consistently secure. The landscape can change dramatically in just a month or two, which is a troubling reflection on humanity. In my youth, I was a guard in a maximum security prison and believed that only about 2% to 3% of the population engaged in evil activities. Now, I think that percentage is significantly higher.

Liam Coohill, Analyst

Yes, no kidding. It's definitely something to watch. I appreciate all that. And just one more for me. I noticed some of the Canadian insolvency deposits declined slightly quarter-over-quarter. Could you discuss kind of bankruptcies in Canada and expectations for those moving forward?

David Taylor, President

We saw a slight increase of about 1.5% in new accounts this quarter related to insolvency proceeds. This suggests that Canada continues to experience a deepening recession, as indicated by the number of our insolvency professionals acquiring new accounts, which leads to increases in deposits. Deposits did decrease a bit, likely due to seasonal factors since our insolvency professionals often distribute proceeds before Christmas. However, we anticipate deposits will grow in the upcoming quarters. Currently, we estimate around CAD 900 million in deposits, with expectations to reach about CAD 1 billion by year-end. Canada continues to face significant challenges, and despite our profitability from insolvencies, I would prefer to report a decline in insolvencies rather than an increase.

Operator, Operator

The next question comes from Andrew Scutt of ROTH Capital.

Andrew Scutt, Analyst

My first question is about the U.S. program. You mentioned that most of the originations in the quarter came from the core program. I'm interested in understanding how you anticipate the mix will change as we progress through the year and work towards that $1 billion target.

David Taylor, President

I think you'll see an increase in purchase securitizations in the next few quarters. There's a significant amount of product available that aligns with our strategy, particularly since these securitizations are issued by our target market. The first quarter may have been an anomaly with only about 15%. However, there is strong demand for traditional on-balance sheet securitization as well. Ultimately, I mentioned $1 billion; it could exceed that amount. It is a valuable product that offers better funding options and reliability for our clients. Additionally, if we enhance the product with the instant purchase program we are developing by the end of the year, it should become even more appealing.

Andrew Scutt, Analyst

Great. Well, I appreciate the detail and kind of building off the strong demand you have for the program. At what point would you kind of say the program is mature enough that you can kind of bleed off some of the excess liquidity that you have on the balance sheet now to fuel the growth?

David Taylor, President

It will be sometime this year. Our treasurer has accumulated a significant amount of liquidity, and we are generating a modest return on it. However, we expect that to decrease toward the end of the year. Additionally, we have previously mentioned our interest in collaborating with other community banks that might want to join us. We manage the program for them and offer them a securitized product that many have shown interest in. This represents a long-term plan to provide services to other small community banks that may have surplus deposits and limited options for investment. This product is low risk and offers a relatively high yield.

Andrew Scutt, Analyst

Great, and congrats on the progress.

Operator, Operator

Your next caller is Eli Rodney from Bullpen Research.

Eli Rodney, Analyst

Congrats on the quarter. So sticking on the U.S. topic for now, $1 billion for 2026 in funding, $200 million as of Q1. How should we think about the pace of growth here, sort of steady quarterly build of $30 million to $40 million or more?

David Taylor, President

It's going to accelerate as some of the partners have just signed up. They have some impressive products. I'm really impressed with what they're doing in the States with low-risk lending, providing affordably priced funding directly to consumers to assist with purchasing homes and vehicles. I believe it's going to speed up. It's becoming popular. People are recognizing its value and asking how they can get involved.

Eli Rodney, Analyst

Yes, it seems that with your earlier comments about the strong pipeline and the potential for new partnerships contributing to that $1 billion target, I am curious about how you prioritize the pipeline given the natural constraints to growth. What characteristics are you looking for in potential SRP partners?

David Taylor, President

It appears that on both sides of the border, the main source of activity is homeowners engaging in home improvement, particularly in areas focused on energy savings such as energy-efficient furnaces and air conditioners, as well as insulation and roofing. In the U.S., the situation is similar, and in the future, there may be innovative financing solutions available for homeowners. Overall, the primary driver is retail, with homeowners enhancing their current properties and considering the purchase of affordable housing units.

Eli Rodney, Analyst

Great. And just looking at costs associated with the reorg, 1.5% in Q1 and sort of guiding to 4% to 4.5% in Q2. I just want to frame up how we should be thinking about the back half of the year. And my baseline assumption is we're heading into 2027 on a clean slate. Is that fair?

David Taylor, President

Yes, absolutely. It’s been quite a challenge. I realized this when I spoke to one of the partners at the accounting firms that have been charging substantial fees. I will be glad to see this come to an end, and the lawyers are also quite costly. We just need to push through and get it finalized. After that, our efficiency ratio will see significant improvements. In the U.S. this quarter, I think we're around 40%. With $1 billion to $1.3 billion in new assets, we can reduce that to around 25%. It just keeps getting better as we use advanced techniques to process these receivables, which means we won’t need much more fixed cost to operate. We will achieve efficiency ratios that other banks can only dream of—lowering to 20% or 25%. The goal is to pass those savings to our partners so they can also increase their profits. This creates a mutually beneficial situation; by leaving more profit for our partners, they are more inclined to collaborate with us since they too are more profitable. It's a win-win scenario. The more we secure, the more efficient we get, and the better pricing we can offer to our partners.

Eli Rodney, Analyst

Right. Even with some short-term fluctuations and one-time expenses, you are beginning to see the operating leverage in the U.S. model emerging. To take a step back and reevaluate the long-term perspective, you have been in the U.S. market for over a year now. Have there been any changes to your initial assessment of the market's long-term potential, either positively or negatively?

David Taylor, President

It will become significantly larger than Canada. The population in the United States is ten times that of Canada, and there's a strong likelihood that Americans are much more inclined to finance at the point of sale compared to Canadians. Therefore, it won’t take long before our exposure in the U.S. surpasses that in Canada. The U.S. market is more efficient for numerous reasons. We are utilizing our advanced software, AMS 3.0. Additionally, the deposit gathering network in the States operates more effectively and is more sophisticated. We're currently paying only about 10 to 15 basis points over U.S. Treasuries, with only one or two people focused on deposit raising in the U.S., whereas we have a whole department for this in Canada. The Canadian market is more fragmented and smaller, leading to costs of about 50 basis points over the risk-free rate. Essentially, the U.S. is larger and more efficient, and we are well-positioned with a national license to capitalize on it.

Eli Rodney, Analyst

Absolutely. As you mentioned, as we grow beyond the size of our Canadian portfolio, our overall bank efficiency should increase alongside that. I will be monitoring this closely. One final question regarding Canada: some aspects of the multifamily portfolio have decreased sequentially from last quarter. I understand there were earlier comments about this being a transition from uninsured to CMHC insured loans. I'm assuming this is a matter of timing, but I'm curious about the broader implications. Clearly, there is an increase in multi-unit inventories and a slowdown in construction. Was this a strategic decision to hasten that transition and lessen our exposure to unsecured or uninsured loans?

David Taylor, President

Absolutely. Looking at my quarterly results from the last few years, I can say that we have intentionally reduced our focus on conventional construction because, like many others, we find the situation in Canada concerning for traditional multifamily housing projects. Therefore, we have placed a greater emphasis on CMHC construction, and we anticipate reaching around $1 billion in commitments. We have been approached by some significant developers, and we recently signed a deal with one right here in London, Ontario. These are the types of projects we prefer—those we can see and interact with, where the developer is investing substantial equity, even with CMHC involvement. We continue to operate as we always have; I have been in this business for nearly 50 years and have experienced various cycles. You learn to read the signs and realize when to be cautious. As the saying goes, risky loans are often made during prosperous times. Thus, you might have noticed us scaling back while some others remain overly aggressive. Moving forward, our portfolio will increasingly resemble CMHC projects, and our developer clients will represent the elite within the Canadian market.

Operator, Operator

There are no further questions at this time. I will now turn the call back over to David Taylor. Please continue.

David Taylor, President

Well, thank you, Danny, and thanks, everybody, for joining us today. I look forward to speaking to you at the time of our second quarter results.

Operator, Operator

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