Q4 2021 Bancorp Inc Earnings Call
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question answer session.
To ask a question during the session you will need to press Star then one on you just had some telephone.
If anyone should require assistance during the conference. Please press star zero to reach an operator.
As a reminder, this call is being recorded.
I like to turn the call over to answer yes.
Ken.
Thank you operator, good morning, and thank you for joining us today for the Bancorp's fourth quarter and fiscal 2021 financial results conference call on the call with me today are Damian Kozlowski, Chief Executive Officer, and Paul Frankel, Our Chief Financial Officer. This mornings call is being webcast on our website at www dot the bancorp dot com there'll be a replay of the call beginning at approximately 12 P M. Eastern.
Time today the island for the replay is 855 850 92056 with a confirmation code of 739 0458 before I turn the call over to Damian I would like to remind everyone that when used in this conference call. The words believes anticipates expects and similar expressions are intended to identify forward looking statements within the meaning of the private so.
Curious litigation Reform Act of 1995.
Such statements are subject to risks and uncertainties, which could cause actual results performance or achievements to differ materially from those anticipated or suggested by such statements.
For further discussion of these risks and uncertainties. Please see the bancorp's filings with the SEC listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date hereof. The Bancorp undertakes.
It takes no obligation to publicly release the results of any revisions to forward looking statements, which may be made to reflect events or circumstances. After the date hereof or to reflect the occurrence of unanticipated events participants may discuss non-GAAP financial measures in this call a copy of the <unk> press release containing financial information other statistical information and a reconciliation of non-GAAP financial measures.
The most directly comparable GAAP financial measure is attached to the bank <unk>. Most recent current report on form 8-K available at our website under Investor Relations Bancorp's. Other SEC filings are also available through this link now I'd like to turn the call over to the Bancorp's Chief Executive Officer, Damian Kozlowski Damian.
Thank you Andres good morning, everyone in the fourth quarter.
The Bancorp earned $27 million and net income or <unk> 46 per share from 7% year over year revenue growth and 3% expense growth interest income was flat, reflecting the impact of CRE prepayments, while noninterest income increased 21% year over year, reflecting the impact of fees, resulting from those prepayments totaled.
Loan balances excluding loans at fair value originally are generated.
Generated for sale grew 41% year over year, and 19% quarter over quarter balance growth year over year was led by institutional banking, which includes securities and insurance.
Lines of credit and registered investment advisor financing within a 28% increase in balances quarter over quarter growth was led by new real estate bridge lending balances at 383% growth institutional 7% and leasing 3%, while SBA decreased slightly as a result of prepayments.
Dollar volume from our cards business grew 11% year over year with payment related fees approximately flat for the full year 'twenty. One GDP grew 12% even with the net impact of nonrecurring stimulus in Africa government payments in 2020.
Our diluted EPS for 2021 was $1 88 exceeding our upward adjusted guidance for the year.
$1 78 by 10 cents a share with the many challenges of 'twenty. One we kept focused on executing our strategic agenda, which we expect will drive long term growth and innovation for our company.
Even with a challenging interest rate environment, we were able to maintain stability in our net interest margin in 2021, our balance sheet continue to show significant loan growth and new product innovation. For example, our relaunched commercial real estate business exceeded our expectations and closed approximately $622 million of new floating rate loans and new products in our institutional wealth.
Business resulted in a significant loan growth and the maintenance of the net interest margins. Unlike many of our competitors. We also continue to invest in our Fintech platform to create an ecosystem. We believe is second to none in the industry, our pipeline of new relationships and new products continues to grow with significant new implementations expected for 2000.
22, some of these relationships had been announced previously, but we expect others will be announced as new programs come to market. This year.
In addition, we continue to focus on controlling expenses and better productivity, while making significant investments in growth for the full year 2021 compared to our prior year. Our total expense expense base grew only 2% and we will continue to be rigorous and creating value by finding new ways to be better organized and efficient to.
The use of enhanced technology tools and training.
Lastly, we continue to see tailwind that should drive continued growth in 2022 earnings and beyond we are also issuing earnings guidance for 2022 of $2 15 per share, which excludes the net impact of share buybacks and the impact of rate increases. In addition, our board increased the them.
Mounts, we may spend to buy back our common stock for $15 million a quarter in 2022 from $10 million a quarter in 2021, I'll now turn the call over to our CFO , Paul Frankel to give more details about the second quarter.
Thank you Damian.
Return on assets and equity for fourth quarter, 2021 were respectively, one, 7% and 17% compared to one 6% and 17% in Q4 2020.
Net interest income in Q4, 2021 was comparable to Q4 2020 at $52 million.
Third quarter of 2021, you'll recall that we resumed the origination of non SBA commercial real estate loans, which are intended to offset the impact of prepayments and payoffs on such loans originally generated per sale.
While there were approximately $500 million et cetera originations in Q4 2021.
The impact on interest income.
Was partially offset by approximately $4 million as a result of prepayments on the loans originally generated for resale.
However fees related to those prepayments are recorded in net realized and unrealized gains on commercial loans, which increased $4 5 million in Q4 2021 compared to Q4 2020.
Even with the impact of the CRE prepayments yearend 2021 period end loans and loans at fair value increased 14% over year end 2020.
Interest income in Q4, 2021, reflecting a reduction of $3 5 million in securities interest compared to Q4, 2020, reflecting lower securities balances prepayments of higher yielding securities and lower reinvestment rates.
Our interest expense was reduced from 24 basis points. During Q4 2020 to 19 basis points during Q4 2021.
Most of our deposit interest expense is contractually tied to a portion of changes in market interest rates.
Our net interest margin of 351% for Q4 2021 was slightly down from $3 five 8% in Q4 2020.
The reduction reflected a lower yield on the securities portfolio.
As higher yielding securities matured or prepaid.
While yields on loans were also lower they comprised a greater portion of interest earning assets in 2021, which contributed positively to the 2021 margin.
In the third quarter of 2021 recall that our NIM was 335%, which reflected higher balances at the federal reserve earnings nominal rates.
The provision for credit losses increased $1 $6 million in Q4 2021 from 554000 in Q4 2020.
The increase reflected the impact of loan growth on the CSO model, including real estate bridge loans, which grew almost $500 million during Q4 2021.
Because <unk> block in <unk> block loans, respectively, collateralized by marketable securities and the cash value of life insurance and have incurred only nominal credit losses management excludes those loans from the ratio of the allowance.
Total loans and its internal.
Analysis, we believe our loan portfolios generally are lower risk than other forms of lending as a result of their charge off history, which reflects the nature of related collateral.
Our non SBA CRE loans at fair value and within real estate bridge lending are comprised primarily of apartment buildings, while our S block and I block portfolios are respectively collateralized by marketable securities some of the cash value of life insurance.
Small business loan portfolio is comprised primarily of SBA loans, which are either 75% guarantee government guaranteed.
50%, 60% origination date loan to loan to value.
For our leasing portfolio, we have recourse to underlying vehicles and a prolonged history of pricing leases to minimize losses tables contained in the earnings press release detailed diversification of our loan portfolios.
Prepaid debit and other payment related accounts, our largest funding source and the primary driver of noninterest income total fees and related payments income in Q4 2021 were comparable to Q4 2020 as the exit of a client relationship offset growth in other relationships.
Noninterest expense for Q4, 2021 was $43 million, reflecting an increase of $1 4 million or 3% from Q4, 2020, FDIC insurance expense was $1 $8 million lower primarily reflecting the cumulative impact of a lower rate, resulting from the <unk>.
Last vacation of certain deposits from brokerage to non broker.
The largest expense increase was $1 $1 million in salaries, which was which were 4% higher than Q4 2020.
Q4, 2021 results also reflected the impact of a reduced tax rate of approximately 24% versus higher rates in recent years. The reduction resulted from excess tax deductions related to stock based compensation.
Large deductions and tax benefit resulted from the increase in the Companys stock price as compared to the original grant date.
Book value per share at 2021 year and increased 13% to $11 37.
Compared to $10 10, a year earlier.
<unk> earnings per share and the net impact of stock repurchases I will now turn the call back to Damien.
Thanks, Paul Operator could you open the lines for questions.
Okay.
As a reminder to ask a question. Please press Star then one.
If your question has been answered you would like to remove yourself from the queue press the pound key.
First question comes from Frank Schiraldi with Pi.
Per Sandler your line is open.
Good morning.
Good morning, Frank.
Wondering if you could just mentioned the $2 15.
The benefit of buybacks or rate hikes.
I Wonder if you could talk a little bit about your expectations.
For pick up.
On NII or margin for a given 25 basis point rate hike in 2022.
Okay. So with.
It changes throughout the year because of the prepayment theres floors on our.
Our legacy billion dollars securities.
Securitization portfolio that we had the floating rate loans, but those are rolling off very quickly.
And those floors will be released so in a static environment, we don't get much benefit.
From the 25 basis point initially, but if you play out the scenario throughout the year it gets better and better very quickly. So by the end of 2021, if we had three or four.
Moves it would have a significant impact on.
Our run rate profitability. So I think the best way to look at it probably for the first half of the year, it's kind of a wash.
Because we're continuing to put on floating rate assets, but as you move through.
The midpoint of the year it becomes a big positive so.
It could be if you think about buybacks and you think about and this isn't guidance and you think about interest rate increases.
Could have anywhere from a three.
Forward towards even a 10% impact on profitability by the end of the year. So there's a lot of variability in it depends on how we put on assets. If we continue to put on a lot of floating rate like we have an ever.
<unk> pay down and the CRA CRE ports legacy portfolio. It will have a bigger impact, but it's it'll play out over the next few months and we'll see have more visibility and we'll of course, let everybody know what we think as the year moves forward.
Okay.
And when you say I know, it's not guidance, but when you say, 3% to 10% you are talking about more so.
The run rate starting two.
2023, so you pick up.
10% better run rate maybe by the end of this year going forward is that what you meant not necessarily 10% increased to 2022.
Fulfill it.
Well, that's what I'm, saying it we just don't know how we're going to put on assets and our prepays are going to happen I was just wondering.
Note again that the one.
Billion dollar plus securitization portfolio, which is prepaying has fees embedded in it so theres about $10 million to $12 million of fees that will be realized as that portfolio winds down, but if you think about buybacks that could have a couple percent up to three ish percent impact on earnings per share.
And then depending on how the balance sheet plays out it could have.
It could be it could be more.
As a percentage of of the guidance for for 2022.
So, but it definitely will impact if you get the interest rate increases.
In 2022, and we get a 10 year, that's going to be $2 50 to three.
3%, it really will impact the fourth quarter, and then going into 2023.
Okay, and then just on the securitization in general one if I add that.
The total of those two.
Multifamily bridge loans that you guys are putting on.
Think of as replacement for that stuff rolling off.
Can you just remind us I know you don't have you don't know exactly because you don't know how much origination is going to get done but.
A range of that total portfolio, which I think is around $2 billion. If you add those two together.
What sort of levels do you expect that to be later this year. So yes. So I think we're looking at about 400 that will be left at the end of the year. So.
It's about $600 million it could be more but depending on the rise of interest rates. Because these are floating rate loans. So we get a steep rise in interest rates there is a great.
Incentive obviously to prepay, so, but we're predicting around 400 by the end of the year of that legacy portfolio and to about double the origination that we did this year, so about $1 2 billion of new.
$1 2 billion of new and a roll off of about six.
Great Okay.
And overall the.
The average balance sheet size here a good.
Bogey for where it will remain through 2022 is there significant growth on that front seem to get to guidance.
Well I think.
Youre going to add 600, there we have other growing portfolios so around $1 billion.
<unk> increase it depends obviously on a lot of things.
It also depends on securities too because if you've got if we got a.
A much higher 10 year, we probably would do.
Do some reinvestment in our securities portfolio too, so it's going to be around $1 billion probably.
Gotcha, Okay, and then just lastly, if I could on the.
<unk>.
Payment related fees.
I know you've sort of deemphasize the need for that line item to grow significantly to hit goals, but.
You had 11% GDP growth year over year, which is pretty good results off of a strong.
A relatively strong 2021.
Card fees were payment related fees were flat. So is there anything you can.
So that I know different programs to provide different margins.
Any sort of color around.
What happened year over year or <unk>.
Expectations for growth from these levels going forward.
Yes, so there's been a general conversion there.
There were two things going on especially over the last 18 months. So we had.
Programs hitting tiers, they're higher tiers, because they're growing so quickly and they have large volumes. So thats a lower tiered pricing those those have been met right that was the first thing that was putting some pressure on margin and the second is the conversion to debit versus general purpose reloadable.
The general purpose reloadable market is under stress because it's not as efficient for the customer because it's much higher fee base.
There's been a lot of conversion to the debit area.
Programs like China. So those are generally a lower margin.
So there has been those two things going on also with our GDP. We also had the barro who left the bank. After the first quarter of last year that also put some pressure on our GDP growth. So those plus the stimulus so as we move out of the first.
Quarter of this year, we won't have those two factors the stimulus and borrow and we've seen we will have more new products and services coming on board with all the implementations where doing so youll see that margin compression hopefully be alleviated as we move through the year plus we have other things going on like credit sponsorship.
So youll see some of those programs.
Start to be put on that won't be in the fee area, but that might actually boost GDP because people, obviously borrow within their account and use it. So we have a lot of things going on but from.
From the payment envelope of activities, obviously, plus or advantaged funding there'll be a lot of economics, driven out of that business in 2022 and going into 'twenty three.
Got you so just the first quarter.
Year over year comps and then we should see some better growth through the rest of the year.
Year over year is that reasonable yes, yes.
Well the first remember we got a massive <unk>.
I think it was one seven trillion that went through the economy at the end of.
It really hits the first quarter in March so that yes, the first quarter.
And if we still had borrow in there too. So that's a very tough comparison to make to draw any conclusion, but right. After that both of those things stop and we have no more comparison and then you have a borrower.
So out of it so youre going to.
We're going to return to trend double digit trend growth.
GDP double digit GDP.
Yes, Yes got you okay. Thank you.
Okay.
Our next question comes from Michael Perito with gave UW. Your line is open.
Good morning, guys. Thanks for taking my questions.
Couple of things I wanted to hit on just.
Number one on the on the cost side.
Okay.
I think in the prepared remarks, we're talking about the hope to try it.
Not have significant cost growth and I know driving efficiencies as a critical element for you guys, but obviously environmentally a bit challenging in light of the more traditional bank peers I think almost universally we're guiding up expenses. This quarter I'm. Just curious if you can give a little bit more color near term about how you think the expense run rate could trend.
Given some of the environmental things going on out there inflationary wage related yes.
Yes, well so we we've tried to.
Build very scalable platform and some of those scale abilities, especially in the payments, but also in the tech enabled businesses, we run like the securities business, we've been focused on building a infrastructure thats.
Add a lot of incremental costs by using new tools and.
Technology capabilities, and that's really been paying off for us and what we've said over the last four years is that we will create a jaws between revenue and expense of 10% and we were able to do it again this year.
<unk>.
Most of the expense growth in the fourth quarter was compensation related to the large size of loan growth. So we think we can still have that.
Hold true in 'twenty, two and maybe even two three even with the current.
Inflation.
In workforce right. So we saw within that.
So if you look at the percentage of net income that we use for employees our employee costs have gone up over the last four years, but as a percentage of our operating expenses.
<unk> moved up that much and as a percentage of net income obviously, it's moved way down so.
We know, it's still playing out theres clearly going to be wage inflation, but we think we're going to be able to cover and maintain that jaws relationship even with the current inflationary environment.
Got it and then if we think about your kind.
Relating that to your long term targets correctly those long term targets really don't include interest rates correct. So without getting too specific is it fair to assume that the benefit of higher interest rates could pull forward.
Some of those even.
Even if some of those targets theoretically.
Once you get past the.
The first 100 and where in the world of 200 basis points, when we get any type of normalization.
Interest rates were extremely asset sensitive.
And we have <unk>.
70, plus percent of our balance sheet is floating so it would have.
We don't do any CD funding and everything so once we have it's all tied to fed funds. So.
It has a dramatic impact once you move.
Yes, it would move forward the rate the Roe.
Would obviously go up.
And it would pull for the targets.
And everything we do is interest rate neutral so all our planning around.
Whatever we do for managing our balance sheet of course, we do scenario planning, but when we when we talk to the market.
Neutral or any rights. So it would have a very significant impact, especially in 2023.
Got it helpful. And then just two more quick ones one.
Paul I heard the commentary about some of the tax rate noise I'm just curious if you had a.
A number of you were budgeting for 2022 that we could use for a range.
I think.
Round, 25%.
Reasonable place to be.
We can't really predict the exact amount of.
Of the tax benefit because it depends on the.
Stock price as of the date of the of divesting. So so I think 25% for next for 2022 is a reasonable place.
Got it.
And then just lastly, I don't know if you guys can comment, but since it's kind of public information at this point I figure I'd ask just obviously sulphide formally got approved for the charter to just wondering if you could help kind of put some parameters or expectations around what the potential.
If it all exit of that relationship given there they will have their own charter.
Could mean for you guys moving forward.
Well it doesn't I don't think it affects.
Of course, we.
The partnership with so far they have.
Great.
<unk> of wanting to grow their company and a safe and sound manner and using the right partnerships of which we obviously appreciate.
We haven't worked that out.
They haven't.
Yes.
Maybe they have but.
There's a lot of ways, we can participate together and provide the right technology and middle office infrastructure for Sofia. So.
I don't it would be love to build a very strong long term relationships I think we will have.
Some sort of relationship going forward, but I really can't.
Regardless of that relationship.
Not big now.
It doesn't really if we were to lose 100% it really doesn't affect our plans going forward. We have so many other programs.
And that all of them grow right. So.
We take on a lot of big programs and some of them are really really successful and some of them arent as successful. So I don't think it will affect our growth and it won't really affect year over year comps if they decided.
Next quarter not to do business.
Got it that's helpful. And then just one quick clarification on that too.
Sure.
Positive program is primarily sweep related correct right. So I think it's fair to assume that they're not a big deal.
<unk> balance sheet deposit partner of yours at this point is that a kind of a fair comment or or can you not.
Well I don't know if Dave.
Exactly how that mechanism works, but there.
They're part of our liquidity is small.
Yes, so it's not it's not it wouldn't impact our deposit base really.
That's what I figured but thank you for clarifying all of that and thanks for taking my questions I appreciate it.
Thank you Mike.
And next question comes from William Wallace with Raymond James Your line is open.
Thanks.
Good morning, Jamie Good morning, Daniel.
I wanted to circle back to Franks questioning on.
On the CRE launch the bridge loans, just just wanted make sure I kind of put it all together so.
If I add the bridge loans plus the held for sale loan portfolio getting to around $2 billion is your intention to ultimately shift.
Everything from held for sale and originate new loans to about $2 billion.
Yes about 300% it might be shorter more in the.
In the short term because we have these prepayments.
It is really 300% of capital is the way to think about it right.
At our capital is obviously growing so, but we're going to we're filling up our balance sheet. So depending on the opportunities. We have in other areas. This is a very flexible type of lending that is very low risk. So.
They're short term loans, there are three year loans pretty much there.
There are floating.
And there they could be sold to other.
Banks are institutions that really like these type of loans. So it's a very flexible.
Part of the balance sheet that we use with our other businesses in order to manage the total exposure up to that $10 billion limit.
Okay great.
You think that the.
The held for sale portion I believe are heard.
I heard.
Do you think it would be down to about $400 million by the end of the year, but youre, saying you might not necessarily be able to keep up with that pace.
On the origination side, but ultimately.
We can I think our I think we will do double what we did 622, it's really 700 million, we did because theres future funding parts of these loans. So we did $700 million a share and we expect to double that next year to footings of a $1 2 billion, but it will be really $1 4 billion with future fundings. So we've expanded our one.
Billy to originate across the United States and moved into.
Additional markets.
And we've done really well.
With the quality and the rate on the product that we're putting on.
Very low risk way. So so once again, our target is 300% might be a little bit higher than that.
In the next 12 months and that's just because we have this roll off happening, we don't know what its going to be but we could get rid of all $1 billion of those held for sale. This year because of interest rate increases because people will want to lock in fixed funding and we don't do that.
We don't do that type of lending and don't.
Perceive that is the right place for us in the marketplace. So.
But that would give us about $12 million or so in fees that would be on the come through the income statement too if that happened because theres still fees.
That our unamortized.
Really because we put the we put those held for sale loans out at 99. So we're in a good position. We're in a very good position with that portfolio and we're very confident we'll be able to originate.
Approximately double what we did this year and that will be able any spread differential will be made up by the fees that will be amortized through the repayment of the loans and if they don't repay as fast that's good too as we get additional interest income. So we're fine whatever we're in a very good position with that portfolio.
Okay.
Okay, Great, Yes, all of the new originations may come on excuse me they come on.
Floating rate, they're not going to come on.
And or floors or anything like that right they'll just come on.
So there'll be a floor is on it but there's no way it can be under the Florida.
Zero interest rates I guess, if we turn to Germany, or Japan, it's possible, but otherwise.
Our inflation expectations ruined any idea that we're going to be negative interest rates.
Yes, okay.
Tom.
In.
You just spoke a little bit about <unk>.
Sponsor opportunities.
<unk> kind of mentioned it.
Periodically over the last year or so as an opportunity for Bancorp I'm wondering if you could maybe help us kind of start to.
<unk>.
Focusing on that I'm, assuming that any partnership with most likely be with an existing partner on the card side.
Assuming you decide to two <unk>.
Implement a program how long does it take to build out a program with any within existing partner and when do you think you might make an announcement of some sort of partnership.
Well.
Your conjecture is basically.
Intellectually consistent right of course.
People that we've partners that we've done business for a long period of time.
And have developed a.
Broad payments relationship are the likely first candidates.
We're willing to use as we've said with the quota credit roadmap our own balance sheet not through securitization, but are on our own balance sheet under the right terms to facilitate <unk>.
Usable programs that can be both good for our partner, but also good for the marketplace and that they can provide.
Some.
Credit capability for Underbanked individuals. So we think we'll be announcing things sooner rather than later, but I can't really I don't want to front run any of those.
Programs, because we go through a marketing process and we always leave it to our partners to lead that message. So I.
I can't really go into further than that but we think we'll be able to announce things sooner rather than later.
I guess, maybe a different way of asking the question is.
Yes.
We are there to be some sort of announcement would you expect that the.
<unk> capabilities would have already been built out and an announcement will be made when the program might be ready to go lives rather than this winter when an agreement was struck.
With these type of programs.
A lot of work in most cases that is true.
Not always but mostly even on the payment side Theres a lot of work that's already been done prior to an announcement right because you have to work out.
All of the different types of.
The envelope of activities processors regulatory whats your compliance how are you going to handle compliance and BSA. So there's usually a lot of work for the for anything in the consumer space, where there is other regulatory guidance that you need to file a lot of work you'll be at least in the beta phase if not the full.
The rollout by the time, we announced it with a partner.
Okay.
Great. Thanks for that we will look forward to a potential announcements I guess sooner than that.
Pleasure.
Yes.
<unk>.
Follow up I'd have just kind of maybe just bigger picture kind of philosophically we had.
We will apply and get their charters, so fine now apply and get their charter and you guys are.
Have your finger on the pulse of the spin.
Tax probably better than most I am just kind of curious if you could talk a little bit about your views on whether or not there is a.
Building.
Desire for Fintech.
To go that route or if the two that have occurred so far might be.
What you would deem kind of case specific I'm, just just maybe your thoughts big picture higher level one.
What the trend may be three 510 years from now.
Aye.
<unk>.
I don't think Thats, the I think there'll be some large players.
It could be so far it could be somebody else that will drive towards being a very large institution. So the top 10 banks today might might include one of those fintech that started.
Recently, and they could become the big Universal Bank in the United States.
And even challenge to larger banks and I think you've heard comments from even Jamie Diamond Thats, a real threat. So that's a possibility and they'll need to build out very broad capabilities not only in.
Deposits, but in lending and potentially securities. So I think thats. The next decade, we will see what happens, but there's going to be a vast majority of innovation that are not going to seek licenses. Even if they are in a banking sphere, because it's not as efficient as using somebody like us and through the other verticals which are.
Also growing things like healthcare et cetera, government et cetera.
There is no desire or you can't be a bank so for a big part of our portfolio, it's not even affected by the charter.
I personally think.
Right now they are both real test cases, I think there is.
<unk>.
There is real.
Cost to being a bank.
And.
There is real restrictions on capital.
And through the interagency process or the camels process, where they rate each part of the bank, it's very difficult to be.
A.
Hi, Super high growing institution, where youre trying to acquire large amounts of clients.
And B also a bank at its very early stages, so, but we'll see how this plays out.
And it's fast evolving.
But I don't think the charter.
Fintech is getting charters as a threat.
Two two.
As banking as a service or ecosystem providers like ourselves I don't think that say a threat.
Going to significantly affect our ability to grow.
Okay, great. Thanks, Damian and just one last little kind of housekeeping question do you guys bought a ton of.
Stock during the quarter and plan to continue doing so I did notice that the period end share count was actually up in the quarter.
I just wonder if you could tell us a little bit about.
What what youre expectations are.
Whatever vesting or issuance.
It might be coming down the road or how much of the buyback should we anticipate can flow through to the tangible book say, yes, I'll give that to Paul but what happened was and I think it's good for especially good for people here, but for shareholders is that early on when we Remediated. The bank, we paid a lot in stock so those.
That things are continuing to vest in the company. That's why you saw maybe a tick up in share.
And shares of Mic might see some mitigation from the buybacks, but we've been paying far less stock.
Recently and at a much higher price so that that <unk>.
Dilution will significant will be significantly lower in the future Paul you want to make a comment.
I would refer you to the.
We actually have a footnote the stock compensation footnote.
Which we.
We have.
We show the.
Every year and actually every quarter, which we show the originations and the rsum vest over a three year period. So it's easily calculable as Damian noted it's really.
We issued some in May 2020, when the stock price was.
Was low.
It was like $7. So that resulted in a large number larger number of shares if you look at the stock price now at around 30.
The number of shares being granted.
Just on a specific dollar amount is only a fraction. So yes, it will have some impact.
This year, but it will continue to diminish.
Because they are.
There is only a fraction of new shares being granted.
Okay, Alright, great. Thanks, Paul I appreciate your time.
I'll step out.
There are no further questions I'd like to turn the call back over to Damian Kozlowski for closing remarks.
Well, thank you everyone for attending and especially too.
Analysts of the stock who.
Great questions today I appreciate it.
You all listening and we'll talk soon thank you operator and have a nice day.
Youre welcome ladies and gentlemen, this does conclude the program you may now disconnect everyone have a great day.
[music].
Yes.
[music].
[music].
[music].
Good day and welcome to the fourth quarter 2021, The Bancorp, Inc. Earnings Conference call at this time, all participants on listen only mode.
After the Speakers' presentation there'll be a question answer session.
A quick question during the session you will need to press Star then one on your touch some telephone if anyone should require assistance. During the conference. Please press Star then zero to reach an operator.
As a reminder, this call is being recorded.
I'd like to turn the call over to Juan Sir.
You may begin.
Thank you operator, good morning, and thank you for joining us today for the Bancorp's fourth quarter and fiscal 2021 financial results conference call on the call with me today are Damian Kozlowski, Chief Executive Officer, and Paul Frankel, Our Chief Financial Officer. This mornings call is being webcast on our website at www dot the bancorp dot com there'll be a replay of the call beginning at approximately 12 P M. Eastern.
Today the island for the replay is 8558592056 with a confirmation code of 739 0458 before I turn the call over to Damian I would like to remind everyone that when used in this conference call. The words believes anticipates expects and similar expressions are intended to identify forward looking statements within the meaning of the private secured.
These litigation Reform Act of 1995.
Such statements are subject to risks and uncertainties, which could cause actual results performance or achievements to differ materially from those anticipated or suggested by such statements.
For further discussion of these risks and uncertainties. Please see the bancorp's filings with the SEC listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date hereof. The Bancorp undertakes no obligation to publicly release the results of any revisions to forward looking statements, which may be made to reflect events or circumstances. After the date hereof or to reflect the occurrence of unanticipated events.
Participants may discuss non-GAAP financial measures in this call a copy of the Bancorp's press release containing financial information other statistical information and a reconciliation of non-GAAP financial measure to the most directly comparable GAAP financial measure is attached to the bank <unk>. Most recent current report on form 8-K available at our website under Investor Relations Bancorp's other SEC filings.
Also available through this link now I'd like to turn the call over to the Bancorp's Chief Executive Officer, Damian Kozlowski Damian.
Thank you Andres good morning, everyone.
In the fourth quarter.
The Bancorp earned $27 million and net income or <unk> 46 per share from 7% year over year revenue growth and 3% expense growth interest income was flat, reflecting the impact of CRE prepayments, while noninterest income increased 21% year over year, reflecting the impact of fees, resulting from those prepayments total loan.
Balances excluding loans at fair value originally are generated for sale grew 41% year over year, and 19% quarter over quarter balance growth year over year was led by institutional banking, which includes securities and insurance.
<unk> lines of credit and registered investment advisor financing within a 28% increase in balances quarter over quarter growth was led by new real estate bridge lending balances at 383% growth institutional 7% and leasing 3%, while SBA decreased slightly as a result of prepayments.
Dollar volume from our cards business grew 11% year over year with payment related fees approximately flat for the full year 'twenty. One GDP grew 12%, even with the net impact of nonrecurring stimulus and government payments in 2020.
Our diluted EPS for 2021 was $1 88 exceeding our upward adjusted guidance for the year of $1 78 by <unk> 10, a share with the many challenges of 'twenty. One we kept focused on executing our strategic agenda, which we expect will drive long term growth and innovation for our company, even with a challenging interest rate environment, we were able to maintain stability.
And our net interest margin in 2021, our balance sheet continue to show significant loan growth and new product innovation. For example, our relaunch commercial real estate business exceeded our expectations and closed approximately $622 million of new floating rate loans and new products in our institutional wealth management business resulted in a significant loan growth.
And the maintenance of the net interest margins. Unlike many of our competitors. We also continue to invest in our Fintech platform to create an ecosystem. We believe is second to none in the industry, our pipeline of new relationships and new products continues to grow with significant new implementations expected for 2022. Some of these relationships have been in.
Now as previously, but we expect others will be announced as new programs come to market. This year.
In addition, we continue to focus on controlling expenses and better productivity, while making significant investments in growth for the full year 2021 compared to our prior year. Our total expense expense base grew only 2% and we will continue to be rigorous and creating value by finding new ways to be better organized and efficient through.
The use of enhanced technology tools and training lastly, we continue to see tailwind that should drive continued growth in 2022 earnings and beyond we are also issuing guidance earnings guidance for 2022 of $2 15 per share, which excludes the net impact of share buybacks and the impact of rate increases.
In addition, our board increased the amounts we may spend to buy back our common stock for $15 million a quarter in 2022 from $10 million a quarter in 2021, I'll now turn the call over to our CFO , Paul Frankel to give more details about the second quarter.
Thank you Damian.
Return on assets and equity for fourth quarter, 2021 were respectively, one, 7% and 17% compared to one 6% and 17% in Q4 2020.
Net interest income in Q4, 2021 was comparable to Q4 2020 at $52 million.
Third quarter of 2021, you will recall that we resumed the origination of non SBA commercial real estate loans, which are intended to offset the impact of prepayments and payoffs on such loans originally generated per sale.
While there were approximately $500 million et cetera originations in Q4 of 2021.
Their impact on interest income.
Was partially offset by approximately $4 million as a result of prepayments on the loans originally generated for resale.
However fees related to those prepayments are recorded in net realized and unrealized gains on commercial loans, which increased $4 5 million in Q4 2021 compared to Q4 2020.
Even with the impact of CW CRE prepayments yearend 2021 period end loans and loans at fair value increased 14% over year end 2020.
Interest income in Q4, 2021, reflecting a reduction of $3 $5 million in securities interest compared to Q4, 2020, reflecting lower securities balances prepayments of higher yielding securities and lower reinvestment rates.
Our interest expense was reduced from 24 basis points. During Q4 2020 to 19 basis points. During Q4 2021, most of our deposit interest expense is contractually tied to a portion of changes in market interest rates.
Our net interest margin of 351% for Q4 2021 was slightly down from $3 five 8% in Q4 2020.
The reduction reflected a lower yield on the securities portfolio.
As higher yielding securities matured or prepaid.
While yields on loans were also lower they comprised a greater portion of interest earning assets in 2021, which contributed positively to the 2021 margin.
In the third quarter of 2021 recall that our NIM was 335%, which reflected higher balances at the federal reserve earnings nominal rates.
The provision for credit losses increased $1 $6 million in Q4 2021 from 554000 in Q4 2020.
The increase reflected the impact of loan growth on the see some model, including real estate bridge loans, which grew almost $500 million during Q4 2021.
Because <unk> block in <unk> block loans are respectively, collateralized by marketable securities and the cash value of life insurance and have incurred only nominal credit losses management excludes those loans from the ratio of the allowance to total loans in its internal analysis, we believe our loan portfolios generally are lower risk than other.
In terms of lending as a result of their charge off history, which reflects the nature of related collateral.
Our non SBA CRE loans at fair value and within real estate bridge lending are comprised primarily of apartment buildings, while our S block and I block portfolios are respectively collateralized by marketable securities where the cash value of life insurance, our small business loan portfolio is comprised primarily of SBA loans, which are.
75% guarantee government guaranteed or have 50% to 60% origination date loan to loan to value.
For our leasing portfolio, we have recourse to underlying vehicles and a prolonged history of pricing leases to minimize losses tables contained in the earnings press release detailed diversification of our loan portfolios.
<unk> debit and other payment related accounts, our largest funding source and the primary driver of noninterest income.
Total fees and related payments income in Q4 2021 were comparable to Q4 2020 as the exit of a client relationship offset growth in other relationships noninterest.
<unk> expense for Q4, 2021 was $43 million, reflecting an increase of $1 4 million or 3% from Q4 2020.
<unk> insurance expense was $1 8 million lower primarily reflecting the cumulative impact of a lower rate, resulting from the reclassification of certain deposits from brokerage to non brokered.
The largest expense increase was $1 $1 million in salaries, which was which were 4% higher than Q4 2020.
Q4, 2021 results also reflected the impact of a reduced tax rate of approximately 24% versus higher rates in recent years. The reduction resulted from excess tax deductions related to stock based compensation.
Larger deductions and tax benefit resulted from the increase in the Companys stock price as compared to the original grant date.
Book value per share in 2021 year and increased 13% to $11 37.
Compared to $10 10, a year earlier, reflecting earnings per share and the net impact of stock repurchases I will now turn the call back to Damien.
Thanks, Paul Operator could you open the lines for questions.
Okay.
As a reminder to ask a question. Please press Star then one.
If your question has been answered you would like to remove yourself from the queue.
Keith.
First question comes from Frank Schiraldi with Piper Sandler Your line is open.
Good morning.
Good morning, Frank.
Wondering if you could just mentioned the $2 15.
The benefit of buybacks or rate hikes.
I Wonder if you could talk a little bit about your expectations.
For pickup.
On NII or margin for a given 25 basis point rate hike in 2022.
Okay. So with.
It changes throughout the year because of the prepayment theres floors on our.
Our legacy billion dollars securities.
Securitization portfolio that we had the floating rate loans, but those are rolling off very quickly.
And those floors will be released so in a static environment, we don't get much benefit.
From the 25 basis point initially, but if you play out the scenario throughout the year it gets better and better very quickly. So by the end of 2021, if we had three or four.
Moves it would have a significant impact on.
Our run rate profitability. So I think the best way to look at it probably for the first half of the year, it's kind of a wash.
Because we're continuing to put on floating rate assets, but as you move through.
The midpoint of the year it becomes a big positive so.
It could be if you think about buybacks. When you think about and this is in guidance and you think about interest rate increases.
It could have anywhere from a three.
All forward towards even a 10% impact on profitability by the end of the year. So there's a lot of variability in it it depends on how we put on assets. If we continue to put out a lot of floating rate like we have an aggressive paydown and the CRA CRE ports legacy portfolio. It will have a bigger impact.
But it's it will play out over the next few months and we'll have more visibility and we'll of course, let everybody know what we think as the year moves forward.
Gotcha Okay.
And when you say I know, it's not guidance, but would you say.
Three of the 10% you are talking about more so.
Run rate starting.
2023, so you pick up.
10% better run rate maybe by the end of this year going forward is that what you meant not necessarily 10% increased to 2022.
So as well.
Well, that's what I'm, saying is we just don't know how we're going to put on assets and our prepays are going to happen I was just wondering.
Note again that debt.
Billion dollar plus securitization portfolio, which is prepaying has fees embedded in it. So there is about $10 million to $12 million of fees that will be realized as that portfolio winds down, but if you think about buybacks that could have a couple percent up to three ish percent impact on earnings per share.
And then depending on how the balance sheet plays out it could have it.
It could be it could be more.
As a percentage of of the guidance for for 2022.
So, but it definitely will impact if you get the interest rate increases.
In 2022, and we get a 10 year, that's going to be $2 50 to three <unk>.
3%, it really will impact the fourth quarter, and then going into 2023.
Gotcha, Okay, and then just on the securitization in general one if I add that.
The total of those two.
Multifamily bridge loans that you guys are putting on which I.
Think of as replacement for that stuff rolling off.
Could you just remind us I know you don't have you don't know exactly because you don't know how much origination is going to get done but well.
A range of that total portfolio, which I think is around 2 billion. If you add those two together.
What sort of level do you expect that to be later this year. So yes. So we I think we're looking at about 400 that will be left at the end of the year. So.
About $600 million it could be more but depending on the rise of interest rates. Because these are floating rate loans. So we get a steep rise in interest rates there is a great.
Incentive obviously to prepay. So we're predicting around 400 by the end of the year of that legacy portfolio and to about double the origination that we did this year. So about $1 2 billion of new so $1 2 billion of new and a roll off of about six.
Great Okay.
And overall the.
Average balance sheet size here a good.
Bogey for where it will remain through 2022 is there significant growth on that front seems to get to God.
Well I think youre going to add 600, there we have other growing portfolios so around $1 billion potentially.
Potentially increase it depends obviously on a lot of things.
It also depends on securities too because if you got if we got a.
A much higher 10 year, we probably would do.
Do some reinvestment in our securities portfolio too, so it's going to be around $1 billion probably.
Gotcha, Okay, and then just lastly, if I could on the.
<unk>.
Payment related fees.
I know you've sort of deemphasize that.
<unk> for that line item to grow significantly hit goals, but.
At 11% GDP growth year over year, which is a pretty good result off of a strong.
Relatively strong 2021.
Card fees, our payment related fees were flat. So is there anything you can.
So that I know different programs provide different margins.
But any sort of color around.
What happened year over year or <unk>.
Our expectations for growth from these levels going forward.
Yes, so there has been a general conversion.
There were two things going on especially over the last 18 months. So we had.
Programs hitting tiers, they're higher tiers, because they're growing so quickly and they have large volumes. So that's a lower tier in pricing. Those those have been met right that was the first thing that was putting some pressure on margin in the second is the conversion to debit versus general purpose reloadable.
The general purpose reloadable market is under stress because it's not as efficient for the customer because it's much higher fee base.
There's been a lot of conversion to the debit area.
For programs like China. So those are generally a lower margin.
So there has been those two things going on also with our GDP. We also had the barro who left the bank. After the first quarter of last year that also put some pressure on our GDP growth. So those plus the stimulus so as we move out of the first.
Quarter of this year, we won't have those two factors the stimulus and borrow and we've seen we will have more new products and services coming on board with all the implementations where doing so youll see that margin compression hopefully be alleviated as we move through the year plus we have other things going on like credit sponsors.
<unk>, so youll see some of those programs.
Start to be put on that won't be in the fee area, but that might actually boost GDP because people, obviously borrow within their account and use it. So we have a lot of things going on but.
From the payments envelope of activities, obviously, plus or advantaged funding there'll be a lot of economics, driven out of that business in 2022 and going into 'twenty three.
Got you. So just you know the first quarter.
Year over year comps and then we should see some better growth throughout this year.
Our year over year, the reasonable, yes, yes, well the first remember we got a massive step.
Stimulus.
And then it was one seven trillion that went through the economy at the end of <unk>.
Really hits the first quarter in March so that yes, the first quarter.
And if we still had borrow in there too. So that's a very tough comparison to make to draw any conclusion, but right. After that both of those things stop and we have no more comparison and then you have.
ROE out of it so youre going to youre going to return to trend double digit trend growth.
GDP double digit GDP.
Yes, yes got it okay. Thank you.
Our next question comes from Michael Perito with <unk>. Your line is open.
Good morning, guys. Thanks for taking my questions.
Sure.
Couple of things I wanted to hit on just.
Number one on the on the cost side you guys.
I think in the prepared remarks, we're talking about the hope to try it.
Not have significant cost growth and I know driving efficiencies as a critical element for you guys, but obviously environmentally a bit challenging in a lot of the more traditional bank peers I think almost universally we're guiding up the expenses. This quarter I'm. Just curious if you can give a little bit more color near term about how you think the expense run rate could trend.
Some of the environmental things going on out there inflationary wage related.
Yes, well so we we've tried to.
<unk> built a very scalable platform and some of those scalability, especially in the payments, but also in the tech enabled businesses, we run like the securities business, we've been focused on building a infrastructure that.
It doesn't add a lot of incremental costs by using new tools and techniques.
<unk> technology capabilities, and that's really been paying off for us and what we've said over the last four years is that we will create a jaws between revenue and expense of 10% and we were able to do it again this year and and.
Most of the expense growth in the fourth quarter was compensation related to the large size of loan growth. So we think we can still have that.
Hold true in 'twenty, two and maybe even 'twenty three even with the current.
Inflation.
In workforce right. So we saw that.
Our workforce if you look at the percentage of net income that we use for employees our employee costs have gone up over the last four years, but as a percentage of our operating expenses. It has not moved up that much and as a percentage of net income obviously, it's moved way down so.
We know it's still playing out there is clearly going to be wage inflation, but we think we're going to be able to cover and maintain that jaws relationship even with the current inflationary environment.
Got it and then if we think about your.
Kind of relating that to your your long term targets correctly promote but those long term targets really don't include interest rates correct. So without getting too specific is it fair to assume that the benefit of higher interest rates could pull forward.
Some of those.
Even if some of those targets theoretically.
It's once you get past the first hundred and where in the world of 200 basis points, when we get any type of normalization.
Interest rates were extremely asset sensitive.
And we have <unk>.
70, plus percent of our balance sheet is floating so it would have.
We don't do any CD funding and everything so once we have it's all tied to fed funds. So.
It has a dramatic impact once you move.
Yes, it would move forward the rate the.
No.
Would obviously go up.
And it would pull forward the targets.
And everything we do is interest rate neutral so all our planning around.
Whatever we do for managing our balance sheet of course, we do scenario planning, but when we when we talk to the market.
Neutral or any rights. So it would have a very significant impact, especially in 2023.
Got it helpful. And then just two more quick ones one.
Hi.
Paul I heard the commentary about some of the tax rate noise I'm just curious if you had.
A number of you were budgeting for 2022 that we could use for a range.
I think.
Around 25% as of <unk>.
Reasonable place to be.
We can't really predict the exact amount of.
Of the tax benefit because it depends on the.
Stock price as of the date of the of divesting. So so I think 25% for next for 2022 is a reasonable place.
Got it.
And then just lastly, I don't know if you guys can comment, but since it's kind of public information at this point I'd figure I'd ask you is obviously.
So five formula got approved for the charter to just wondering if you could help kind of put some parameters or expectations around what the potential is.
If it all exit of that relationship given there they will have their own charter.
Could mean for you guys moving forward.
Well it doesn't I don't think it affects.
Of course, we.
Love the partnership with <unk> they have.
A great APA.
Appreciation of wanting to grow their company and a safe and sound manner and using the right partnerships of which we obviously appreciate we haven't worked that out.
They haven't.
Maybe they have but theres.
Theres a lot of ways, we can participate together and provide the right technology and middle office infrastructure for Sofia. So.
I don't it would be love to build a very strong long term relationships I think we will have some sort of relationship going forward, but I really can't.
Regardless of that relationship it's not big now.
It doesn't really if we were to lose 100% it really doesn't affect our plans going forward. We have so many other programs.
And that all of them grow right. So.
We take on a lot of big programs and some of them are really really successful and some of them arent as successful. So I don't think it will affect our growth and it won't really affect year over year comps if they decided.
Next quarter not to do business.
Got it that's helpful. And then just one quick clarification on that too.
Sure.
Positive program is primarily sweep related correct right. So I think it's fair to assume that they're not a big deal.
Balance sheet deposit partner of yours at this point is that a kind of a fair comment or or can you not say.
Well I don't know, if Dave said exactly how that mechanism works, but there.
They're part of our liquidity is small.
Yes, so it's not it's not it wouldn't impact our deposit base really.
That's what I figured but thank you for clarifying all of that and thanks for taking my questions I appreciate it.
Thank you Mike.
Our next question comes from William Wallace with Raymond James Your line is open.
Thanks.
Yes.
Good morning, Jamie Good morning, Daniel.
I wanted to circle back to Franks questioning on.
On the CRE launch the bridge loans, just just wanted make sure I kind of put it all together so.
If I add the bridge loans plus the held for sale loan portfolio getting to around $2 billion is your intention to ultimately shift.
Everything from held for sale and originate new loans to about $2 billion.
Yes about 300% might be shorter more in the.
In the short term because we have these prepayments. So our target is really 300% of capital is the way to think about it right.
At our capital is obviously growing so, but we're going to we're filling up our balance sheet. So depending on the opportunities. We have in other areas. This is a very flexible type of lending that is very low risk. So.
They're short term loans, there are three year loans pretty much.
There are floating and they are they can be sold to other.
Banks are institutions that really like these type of loans. So it's a very flexible.
Part of the balance sheet that we use with our other businesses in order to manage the total exposure up to that $10 billion limit.
Okay great.
You think that the.
The held for sale portion I believe I heard.
Do you think it would be down to about $400 million by the end of the year, but youre, saying you might not necessarily be able to keep up with that pace and the origination side, but ultimately.
No. We can I think our I think we will do double what we did 622, it's really $700 million, we did because theres future funding parts of these loans. So we did $700 million a share and we expect to double that next year to footings of a $1 2 billion, but it will be really $1 4 billion with future fundings. So we've expanded our.
The ability to originate across the United States and moved into.
Additional markets and.
And we've done really well.
With the quality and the rate on the product that we're putting on.
Low risk way. So so once again, our targeted 300% might be a little bit higher than that.
In the next 12 months and Thats, just because we have this roll off happening we don't know what it's going to be but we can get rid of all $1 billion of those held for sale. This year because of interest rate increases because people will want to lock in fixed funding and we don't do that.
We don't do that type of lending and don't.
Perceive that is the right place for us in the marketplace. So.
But that would give us about $12 million or so in fees that would be on the come through the income statement too if that happened because theres still fees.
That our unamortized.
Really because we put the we put those held for sale loans out at 99. So we're in a good position. We're in a very good position with that portfolio and we're very confident we'll be able to originate.
Approximately double what we did this year and that will be able any spread differential will be made up by the fees that will be amortized through the repayment of the loans and if they don't repay as fast that's good too because we get additional interest income. So we're fine whatever we're in a very good position with that portfolio.
Okay.
Okay, great Yeah, all the new originations they come on excuse me they come on.
Floating rate, they're not going to come on.
And or floors or anything like that right they'll just come on.
So there'll be a floor is on it but there's no way it can be under the Florida.
Because we're at zero interest rates I guess, if we turn to Germany, or Japan, it's possible, but otherwise.
Think our inflation expectations ruined any idea that we're going to be negative interest rates.
Yes, okay.
Tom.
And.
You just spoke a little bit about <unk>.
Credit sponsor opportunities.
Kind of mentioned it.
Periodically over the last year or so is an opportunity for bancorp I'm wondering if you could maybe help us kind of start to.
Focus in on that like I'm, assuming that any partnership would most likely be with an existing partner on the card side.
Assuming you decide to two <unk>.
Implement a program how long does it take to build out a program with it with an existing partner and when do you think you might make an announcement of some sort of partnership.
Well.
Your conjecture is basically.
Intellectually consistent rate of course.
People that we've partners that we've done business for a long period of time.
And have developed a.
Broad payments relationship are the likely first candidates.
We're willing to use as we've said with the quota credit roadmap our own balance sheet not through securitization, but are on our own balance sheet under the right terms to facilitate <unk>.
Reasonable programs that can be both good for our partner, but also good for the marketplace and that they can provide.
Some.
Credit capability for Underbanked individuals. So we think we'll be announcing things sooner rather than later, but I can't really I don't want to front run any of those.
Programs, because we go through a marketing process and we always leave it to our partners to lead that message. So I.
I can't really go into further than that but we think we'll be able to announce things sooner rather than later.
I guess, maybe a different way of asking the question is.
Yes.
We are there to be some sort of announcement would you expect that the the capabilities would have already been built out and an announcement will be made when the program might be ready to go lives rather than just went into when an agreement was struck.
With these type of programs.
A lot of work in most cases that is true.
Not always but mostly even on the payment side Theres a lot of work that's already been done prior to an announcement right because you have to work out all.
All of the different types of.
The envelope of activities processors regulatory whats your compliance how are you going to handle compliance and BSA. So there's usually a lot of work for the for anything in the consumer space, where there is other regulatory guidance that you need to file a lot of work you'll.
You will be at least in the beta phase if not the full rollout by the time, we announced it with a partner.
Okay.
Yes.
Great. Thanks for that we will look forward to a potential announcements I guess sooner than that.
Sure.
The <unk>.
A follow up I'd have just kind of maybe just bigger picture kind of philosophically, we had zero apply and get their charters. So fine now apply and get their charter and you guys are.
Have your finger on the pulse of the same.
Tax probably better than most I am just kind of curious if you could talk a little bit about your views on whether or not there is a.
Building.
Desire for Fintech.
Want to go that route or if the two that have occurred so far might be what you would deem kind of case specific I'm just just maybe your thoughts big picture higher level one.
What the trend may be three 510 years from now.
Aye.
No.
I don't think Thats, the I think there'll be some large players.
It could be so far it could be somebody else that will drive towards being a very large institution. So the top 10 banks today might might include one of those fintech that started.
<unk> recently and they could become a big Universal bank in the United States.
And even challenge to larger banks and I think you've heard comments from even Jamie Diamond Thats, a real threat. So that's a possibility and they'll need to build out very broad capabilities not only in.
Deposits, but in lending and potentially securities. So I think thats. The next decade, we will see what happens, but there's going to be a vast majority of innovation that are not going to seek licenses. Even if they are in our banking sphere, because it's not as efficient as using somebody like us and through the other verticals.
We are also growing things like healthcare et cetera.
Government et cetera.
There is no desire or you can't be a bank so for a big part of our portfolio that would be unaffected by the charter.
I personally think.
Right now, they're both real test cases, I think there is.
There is real.
Cost to being a bank.
And.
There is real restrictions on capital.
And through the interagency process or the camels process, where they rate each part of the bank, it's very difficult to be.
A.
Ah Hi, Super high growing institution, where youre trying to acquire large amounts of clients.
And B also a bank at its very early stages, so, but we'll see how this plays out.
And it's fast evolving.
But I don't think the charter.
Fintech is getting charters as a threat.
Two two.
As banking as a service or ecosystem providers like ourselves I don't think that's a threat.
Going to significantly affect our ability to grow.
Okay, great. Thanks, Damian and just one last little kind of housekeeping questions you guys bought a ton of.
Stock during the quarter and plan to continue doing so I did notice that the period end share count was actually up in the quarter.
Slightly I just wonder if you could tell us a little bit about.
What what youre expectations are.
On whatever vesting or issuance.
It might be coming down the road or how much of the buyback should we anticipate can flow through to tangible book say, yes, I'll give that to Paul but what happened was and I think it's good for especially good for people here, but for shareholders is that early on when we Remediated. The bank, we paid a lot in stock and so those.
That things are.
<unk> divest in the company and Thats why you saw maybe a tick up in share.
And shares of Mic might see some mitigation from the buybacks, but we've been paying far less stock.
Recently and at a much higher price so that that's <unk>.
Dilution will was significant will be significantly lower in the future Paul you want to make a comment.
I would refer you to the.
We actually have a footnote that stock compensation, but note.
Which we.
We have which we show the.
Every year and actually every quarter, which we show the originations and the rsum vast over a three year period. So it's easily calculable as Damian noted it's really.
We issued some in May 2020, when the stock price was.
Was low.
It was like $7. So that resulted in a large number larger number of shares if you look at the stock price now at around 30.
The number of shares being granted.
Just on a specific dollar amount is is only a fraction. So yes. It will have some impact.
This year, but it will continue to diminish.
Because they are.
There is only a fraction of new shares being granted.
Okay, Alright, great. Thanks, Paul I appreciate the time guys.
I'll step out.
There are no further questions I'd like to turn the call back over to Damian Kozlowski for closing remarks.
Well, thank you everyone for attending and especially too.
Analysts of the stock who.
Some great questions today I appreciate it.
You all listening and we'll talk soon thank you operator have a nice day.
Youre welcome ladies and gentlemen, this does conclude the program you may now disconnect everyone have a great day.