Q2 2024 The Bancorp Inc Earnings Call
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Operator: Good day and welcome to the Bancorp Inc Q2 2024 earnings conference call. At this time, all participants are enabless and only mode. After the speaker's remarks, there will be a question and answer session. You may register to ask a question at any time by pressing star one on your telephone keypad. You may withdraw your question by pressing star two.
Operator: Good day, and welcome to the Bancorp Inc. Q2 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw your question by pressing star 2. Please note today's call will be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the call over to Andres Viroslav. Please go ahead.
Speaker Change: Good day and welcome to the Bancorp Inc Q2 2024 earnings conference call.
Speaker Change: At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker's remarks, there will be a question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw your question by pressing star 2.
Operator: Please note today's call will be recorded, and I will be standing by if you should need any assistance.
Speaker Change: Please note today's call will be recorded and I will be standing by if you should need any assistance.
Andres Viroslav: It is now my pleasure to turn the call over to Andres Viroslav. Please go ahead.
Speaker Change: It is now my pleasure to turn the call over to Andres Viroslav. Please go ahead.
Andres Viroslav: Thank you, Operator. Good morning, and thank you for joining us today for the Bancorp's second quarter 2024 financial results conference call. On the call with me today are Damian Kozlowski, Chief Executive Officer, and Paul Frenkiel, our Chief Financial Officer. This morning's call is being webcast on our website at www.thebancorp.com. There will be a replay of the call available via webcast on our website beginning at approximately 12 p.m. Eastern Time today. The dial-in number for the replay is 1-800-934-5153.
Andres Viroslav: Thank you, operator.
Andres Viroslav: Good morning, and thank you for joining us today for the Bancorp's second quarter 2024 financial results conference call. On the call with me today are Damian Kozlowski, Chief Executive Officer, and Paul Frenkiel, Chief Financial Officer. This morning's call is being webcast on our website at www.thebancorp.com. There will be a podcast on our website beginning at approximately 12 p.m. Eastern Time today. The dial-in for the replay is 1-800-934-5153.
Andres Viroslav: Thank you, operator. Good morning and thank you for joining us today for the Bancorp's second quarter 2024 financial results conference call. On the call with me today are Damian Kozlowski, Chief Executive Officer, and Paul Frenkiel, our Chief Financial Officer.
Speaker Change: This morning's call is being webcast on our website at www.thebancorp.com. There will be a replay of the call available via webcast on our website beginning at approximately 12 p.m. Eastern Time today.
Andres Viroslav: The dial-in for the replay is 1-800-934-5153.
Andres Viroslav: Before I turn the call over to Damian, I would like to remind everyone that when using this conference call, the words "believes" and "anticipates," "expects," and similar expressions are intended to identify forward-looking statements and the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risk and uncertainties, which could cause after results for performance or achievements a different material from those anticipated or success in such statements. For further discussion of these recent uncertainties, please see the Bancorp's filings with the SEC. Listeners are cautioned not to place undue reliance on these four-looking statements, which be the only as of the D-Terov.
Andres Viroslav: 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 Securities 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. For further discussion of these risks and uncertainties, please see Bancorp's filings with the SEC.
Speaker Change: Before I turn the call over to Damian, I would like to remind everyone that when using this conference call, the words believes, anticipates, expects,
Damian M. Kozlowski: and similar expressions are intended to identify forward-looking statements in the meaning of the Private Securities 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.
Andres Viroslav: 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. Now I'd like to turn the call over to Bancorp's Chief Executive Officer, Damian.
Damian M. Kozlowski: For further discussion of these risks and uncertainties, please see the Bancorp's filings with the SEC.
Damian M. Kozlowski: 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.
Andres Viroslav: 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 D-Terov or to reflect the occurrence of anticipated events.
Andres Viroslav: Now I'd like to turn the call over to the Bancorp's Chief Executive Officer Damian Koflowski. Damian?
Damian M. Kozlowski: Now I'd like to turn the call over to the Bancorp's Chief Executive Officer, Damian Kozlowski. Damian?
Damian M. Kozlowski: Thank you, Andres. Good morning, everyone.
Damian Kozlowski: Thank you, Andreys.
Damian Kozlowski: Good morning, everyone. The Bancorp earned a dollar five a share or a dollar seven adjusted for interest on a residual security from the securitization business, exited in 2020. With revenue growth, year over year of 7% and expense growth of 3%, ROI was 27%. Nim contracted to 497 from 515, quarter-quarter versus 43 year over year. This contraction was primarily due to the purchase of 900 million of long-term fixed rates securities in April at a 511 yield. These purchases have mostly been financed through ongoing fintech programs deposits with limited borrowings, thus the impact of Nim has been lower than anticipated.
Damian M. Kozlowski: Thank you, Andres. Good morning, everyone.
Speaker Change: The Bancorp earned $1.05 a share, or $1.07 adjusted for interest on a residual security from the securitization business exited in 2020, with revenue growth year-over-year of 7% and expense growth of 3%. ROE was 27%.
Damian M. Kozlowski: The Bancorp earned $1.05 a share, or $1.07 adjusted for interest on a residual security from the securitization business exited in 2020, with revenue growth of 7% year-over-year and expense growth of 3%. ROE was 27%. NIM contracted to $4.97 from $5.15, quarter-over-quarter, versus $4.83 year-over-year. This contraction was primarily due to the purchase of $900 million of long-term fixed-rate securities in April at a $5.11 yield. These purchases have mostly been financed through ongoing fintech program deposits with limited borrowings, so the impact of NIM has been lower than anticipated.
Speaker Change: NIM contracted to $4.97 from $5.15, quarter-over-quarter versus $4.83 year-over-year.
Speaker Change: This contraction was primarily due to the purchase of 900 million of long-term fixed-rate securities in April at a 511 yield.
Speaker Change: These purchases have mostly been financed through ongoing fintech program deposits with limited borrowings. Thus, the impact of NIM has been lower than anticipated.
Damian M. Kozlowski: The Fintech Solutions Group continues to show significant growth momentum from the ramp-up and expansion of new and existing programs broadly across the portfolio, and especially in B2B payments. GDV increased 13% year-over-year, and total fees from all Fintech activities increased 13%.
Damian Kozlowski: The fintech solutions group continue to show significant growth momentum from the ramp up and expansion of new and existing programs broadly across the portfolio and especially in B2B payments. GDB increased 13% year over year, and total fees from all fintech activities increased 13%.
Speaker Change: The Syntax Solutions Group continues to show significant growth momentum from the ramp-up and expansion of new and existing programs broadly across the portfolio.
Speaker Change: and especially in B2B payments. GDB increased 13% year over year and total fees from all fintech activities increased 13%.
Damian Kozlowski: This quarter is the first where we will begin to break out our credit sponsorship loan balances and fees in our financial reporting, with balances reported as consumer fintech loans. As the key strategic initiative of the bank and objective of our Apex 2030 strategy, we have spent the last few years building a platform that will enable existing and new partners to issue credit solutions to their customers. These loans will be generally short-term and mostly secured by our partners or distributed to investors. Over the next five years, we intend to build a diversified group of regulator-compliant credit sponsor programs that will mirror our best-in-class innovative capabilities in our fintech payments ecosystem.
Damian M. Kozlowski: This quarter is the first where we will begin to break out our credit sponsorship loan balances and fees and our financial reporting with balances reported as consumer Fintech loans. As a key strategic initiative of the bank and objective of our APEX 2030 strategy, we have spent the last few years building a platform that will enable existing and new partners to issue credit solutions to their customers. These loans will be generally short-term and mostly secured by our partners or distributed to investors.
Speaker Change: This quarter is the first where we will begin to break out our credit sponsorship loan balances and fees and our financial reporting with balances reported as consumer Fintech loans.
Speaker Change: As a key strategic initiative of the bank and objective of our APEX 2030 strategy, we have spent the last few years building a platform that will enable existing and new partners to issue credit solutions to their customers.
Speaker Change: These loans will be generally short-term and mostly secured by our partners or distributed to investors. Over the next five years, we intend to build a diversified group of regulator-compliant, credit-sponsored programs that will mirror our best-in-class, innovative capabilities in our fintech payments ecosystem.
Damian M. Kozlowski: Over the next five years, we intend to build a diversified group of regulatory-compliant credit sponsor programs that will mirror our best-in-class innovative capabilities in our fintech payments ecosystem. On the lending side, we had year-over-year growth across the portfolio of 6%, led by small business lending with growth of 16% year-over-year and 4% quarter-over-quarter. Most notably, our institutional book has continued to stabilize and showed incremental growth quarter-over-quarter of 1%. Concerning our commercial real estate portfolio of multifamily transitional loans, we continue to expect little or no losses due to the current portfolio and individual loan leverage and our underwriting standards for loans at their inception.
Damian Kozlowski: On the lending side, we had your over-year growth across the portfolio of 6%, led by small business lending with growth of 16% in your over-year and 4% quarter-requiter. Most notably, our institutional book has continued to stabilize and showed incremental growth quarter-requiter of 1%. With turning our commercial real estate portfolio of multi-family transitional loans, we continue to expect little or no losses due to the current portfolio and individual loan leverage and our underwriting standards for loans at their inception.
Speaker Change: On the lending side, we had year-over-year growth across a portfolio of 6%.
Speaker Change: led by small business lending with growth of 16% year-over-year and 4% quarter-over-quarter.
Speaker Change: Most notably, our Institutional Book has continued to stabilize and showed incremental growth quarter-over-quarter of 1%.
Speaker Change: Concerning our commercial real estate portfolio of multifamily transitional loans, we continue to expect little or no losses due to the current portfolio and individual loan leverage and our underwriting standards.
Damian Kozlowski: We recently entered an agreement to sell our one Oreo multi-family property, expected the closing December 24, with a sales price to cover the current other real estate owned balance, plus the forecasted cost of improvements in process. Lastly, with continued strong growth in our Fintech activities, including Craig sponsorship and growth across our lending portfolio, we are listing our guidance to 435 from 525 a share without the impact of 50 million per quarter of share buybacks in 24.
Damian M. Kozlowski: We recently entered an agreement to sell our one Oreo multifamily property, expected to close on December 24, with a sales price to cover the current other real estate on balance, plus the forecasted cost of improvements in process. Lastly, with continued strong growth in our fintech activities, including credit sponsorship and growth across our lending portfolio, we are lifting our guidance to $435 from $525 a share without the impact of $50 million per quarter of share buybacks in 2024. We intend to issue preliminary 2025 guidance in our third quarter press release. I now turn over the call to Paul Frenkiel for more color on the first quarter.
Speaker Change: for loans at their inception. We recently entered an agreement to sell our one
Speaker Change: Oreo Multifamily Property expected to close in December 24, with a sales price to cover the current other real estate on balance plus the forecasted cost of improvements in process.
Speaker Change: Lastly...
Speaker Change: With continued strong growth in our fintech activities including great sponsorship
Speaker Change: In growth across our lending portfolio, we are lifting our guidance to $4.35 from $5.25 a share without the impact of $50 million per quarter of share buybacks in 2024. We intend to issue preliminary
Damian Kozlowski: We intend to issue preliminary 2025 guidance in our third quarter press release.
Paul Frenkiel: I now turn over the call to Paul Frankle for more color on the first quarter. Thank you, Damien. As a result of its variable rate loans and securities, Bancorp performance continues to benefit from the cumulative impact of Federal Reserve rate increases. Additionally, as Damien stated, the purchase of $900 million of fixed-rate U.S. government-sponsored agency securities in April 2024 has significantly reduced exposure to future Federal Reserve rate decreases. Overnight borrowings for the quarter average 92 million, as the majority of the purchases were funded by deposits. While deposits generally decline in the second quarter with continuing reductions in tax refund-related balances, this quarter deposits, on average, increased over 200 million compared to the first quarter of 2024.
Speaker Change: 2025 guidance in our third quarter press release.
Speaker Change: I now turn over the call to Paul Frenkiel for more color on the first quarter.
Paul Frenkiel: As a result of its variable rate loans and securities, Bancorp's performance continues to benefit from the cumulative impact of Federal Reserve rate increases. Additionally, as Damian stated, the purchase of $900 million of fixed-rate U.S. government-sponsored agency securities in April 2024 has significantly reduced exposure to future Federal Reserve rate decreases. Overnight borrowings for the quarter averaged $92 million as the majority of the purchases were funded by deposits.
Paul Frenkiel: Thank you, Damian. As a result of its variable rate loans and securities, Bancorp performance continues to benefit from the cumulative impact of Federal Reserve rate increases.
Paul Frenkiel: Additionally, as Damian stated, the purchase of $900 million of fixed-rate U.S. government-sponsored agency securities in April 2024 has significantly reduced exposure to future Federal Reserve rate decreases.
Speaker Change: Overnight borrowings for the quarter averaged 92 million as the majority of the purchases were funded by deposits.
Paul Frenkiel: While deposits generally decline in the second quarter, with continuing reductions in tax refund-related balances, this quarter, deposits on average increased over $200 million compared to the first quarter of 2024. At an estimated average 5.11% yield, securities purchases had only a modest impact on current income, while significant prepayment protection is reflected in the estimated 8-year weighted average lives. Additionally, the bank continues to emphasize fixed-rate loans to continue to further reduce lower rate exposure to modest levels.
Speaker Change: While deposits generally decline in the second quarter with continuing reductions in tax refund related balances.
Speaker Change: This quarter, deposits on average increased over $200 million.
Paul Frenkiel: At an estimated average 5.11 percent yield, the securities purchases had only a modest impact on current income, while significant prepayment protection is reflected in estimated eight-year weighted average lives. Additionally, the bank continues to emphasize fixed-rate loans to continue to further reduce lower rate exposure to modest levels. In addition to the impact of the Federal Reserve rate increases, the company benefited from loan growth, with year-over-year decreases in S-block and I-block significantly offset by increases in other higher yielding lending categories. In Q2-2024, S-block and I-block reversed trend from net quarterly decline since the fourth quarter of 2022 to net growth in Q2-2024, notwithstanding the persistence of higher rates.
Speaker Change: compared to the first quarter of 2024. At an estimated average 5.11% yield,
Speaker Change: The securities purchases had only a modest impact on current income, while significant prepayment protection is reflected in estimated 8-year weighted average lies.
Speaker Change: Additionally, the bank continues to emphasize fixed-rate loans.
Speaker Change: to continue to further reduce lower rate exposure to modest levels.
Paul Frenkiel: In addition to the impact of the Federal Reserve rate increases, the company benefited from loan growth, with year-over-year decreases in S Block and I Block significantly offset by increases in other higher-yielding lending categories. In Q2 2024, S-block and I-block reversed their trend from net quarterly decline since the fourth quarter of 2022 to net growth in Q2 2024, notwithstanding the persistence of higher rates. We believe that higher rates have resulted in payoffs from customer rate sensitivity.
Speaker Change: In addition to the impact of the Federal Reserve rate increases, the company benefited from loan growth with year-over-year decreases in S-block and I-block, significantly offset by increases in other higher-yielding lending categories.
Speaker Change: in Q2 2024.
Speaker Change: S-block and I-block reversed trend from net quarterly decline since the fourth quarter of 2022 to net growth in Q2 2024, notwithstanding the persistence of higher rates. We believe that higher rates have resulted in payoffs from customer rate sensitivity.
Paul Frenkiel: We believe that higher rates have resulted in payoffs from customer rate sensitivity. The impact of the aforementioned Federal Reserve rate increases on variable rate loans and securities, and lesser increases in deposit rates, with growth in higher yielding loan categories, was reflected in an 8 percent increase. in that interest income in Q224 compared to Q2223. As a result, in Q2 2024, the yield on interest earning assets had increased to 7.3% from 7% in Q2 2023, or an increase of 0.3%. The cost funds in those respective periods increased by only 0.1% to 2.5%. Those factors were reflected in the 4.97% NIM in Q2 224.
Paul Frenkiel: The impact of the aforementioned Federal Reserve rate increases on variable rate loans and securities and lesser increases in deposit rates with growth in higher yielding loan categories was reflected in an 8 percent increase in net interest income in Q2 2024 compared to Q2 2023. As a result, in Q2 2024, the yield on interest-earning assets had increased to 7.3% from 7% in Q2 2023, or an increase of 0.3%. The cost of funds in those respective periods increased by only 0.1% to 2.5%.
Speaker Change: The impact of the aforementioned Federal Reserve rate increases on variable rate loans and securities, and lesser increases in deposit rates, with growth in higher yielding loan categories, was reflected in an 8% increase.
Speaker Change: in net interest income in Q2 2024 compared to Q2 2023. As a result, in Q2 2024,
Speaker Change: The yield on interest earning assets had increased to 7.3% from 7% in Q2 2023 or an increase of 0.3%. The cost of funds in those respective periods increased by only 0.1% to 2.5%.
Paul Frenkiel: Those factors were reflected in the 4.97% NIM in Q2 2024. Provision for credit losses was $1.3 million in Q2 2024 compared to $361,000 in Q2 2023. Revision for credit losses in Q2 2024 reflected the impact of $1.4 million of leasing net charge-offs, while the majority of such charge-offs had been previously reserved. The largest single component of leasing charge-offs was local trucking, transportation, and related activities, for which total exposure was approximately $34 million at June 30, 2024.
Speaker Change: Those factors were reflected in the 4.97% NIMM in Q2 2024.
Paul Frenkiel: The provision for credit losses was 1.3 million in Q2 224 compared to 361,000 in Q2 223. Revision for credit losses in Q2224 reflected the impact of 1.4 million of leasing that charge-offs, while the majority of such charge-offs had been previously reserved. The largest single component of leasing charge-offs was local trucking transportation and related activities, for which total exposure was approximately $34 million at June 30th, 2024. As described in our press release, the company entered into a purchasing sale agreement with a year-end 2024 closing deadline for the $39.4 million balance apartment loan, which was reported as non-accrual last quarter, and which now comprise the majority of other real estate owned.
Speaker Change: The provision for credit losses was $1.3 million in Q2 2024 compared to $361,000 in Q2 2023.
Speaker Change: Provision for credit losses in Q2 2024 reflected the impact of $1.4 million of leasing net charge-offs, while the majority of such charge-offs had been previously reserved.
Speaker Change: The largest single component of leasing charge-offs was local trucking, transportation, and related
Speaker Change: Total exposure was approximately $34 million at June 30, 2024.
Paul Frenkiel: As described in our press release, the company entered into a purchase and sale agreement with a year-end 2024 closing deadline for the $39.4 million balance of the apartment loan, which was reported as nonaccrual last quarter and which now comprises the majority of other real estate owned. Non-accrual loans, loans 90 days still accruing, and other real estate owned total $77.1 million at June 30, 2024, compared to $76.7 million at March 31, 20 While a $12.3 million loan became delinquent during Q2 2024 after having been modified with a payment deferral, the as-is and as-stabilized LTVs for related collateral were 72% and 56% based on a May 2024 appraisal.
Speaker Change: As described in our press release, the company entered into a purchase and sale agreement with a year-end 2024 closing deadline for the $39.4 million balance apartment loan, which was reported as non-accrual last quarter and which now comprises the majority of other real estate owned.
Paul Frenkiel: Non-accrual loans, loans 90 days still accruing, and other real estate owned total $77.1 million at June 30th, 2024, compared to $76.7 million at March 31st, 2024. While a $12.3 million loan became delinquent during Q2 224 after having been modified with a payment deferral, the as-is and as stabilized LTVs for related collateral are 72% and 56% based on a May 2024 appraisal. While the macroeconomic environment has challenged the multi-family bridge space, the stability of bank corpse rehabilitation bridge loan portfolio is evidenced by the estimated values underlying collateral. The $2.1 billion apartment bridge lending portfolio has a weighted average to originate origination date as is LTV of 70% based on third-party appraisals.
Speaker Change: Non-accrual loans, loans 90 days still accruing, and other real estate owned total $77.1 million at June 30, 2024, compared to $76.7 million at March 31, 2024.
Speaker Change: While a $12.3 million loan became delinquent during Q2 2024 after having been modified with a payment deferral, the as-is and as-stabilized LTVs for related collateral are 72% and 56%.
Paul Frenkiel: While the macroeconomic environment has challenged the multifamily bridge space, the stability of Bancorp's rehabilitation bridge loan portfolio is evidenced by the estimated values underlying collateral. The $2.1 billion apartment bridge lending portfolio has a weighted average origination date, as well as an LTV, of 70% based on third-party appraisals. Further, the weighted average origination date as stabilized LTV, which measures the estimated value of the apartments after the rehabilitation is complete, may provide even greater protection.
Speaker Change: based on a May 2024 appraisal.
Speaker Change: While the macroeconomic environment has challenged the multifamily bridge space, the stability of Bancorp's rehabilitation bridge loan portfolio is evidenced by the estimated values underlying collateral.
Speaker Change: The $2.1 billion apartment bridge lending portfolio has a weighted average origination date, as is LTV, of 70% based on third-party appraisals. Further, the weighted average origination date, as
Paul Frenkiel: Further, the weighted average origination date as stabilized LTV, which measures the estimated value of the apartments after the rehabilitation is complete, may provide even greater protection. One of the accounting estimates is described in the notes to our financial statements as the allowance for credit losses, which is sensitive to a variety of inherent portfolio and external factors. Rebel may be one of the more sensitive portfolios to such factors. In the second quarter of 2024, Rebel loans classified as either special mention or a substandard increased to 177.1 million from 165.2 million at March 31st, 2024. Each classified loan was evaluated for potential increase in the allowance for credit losses on the basis of third-party appraisals of related apartment building collateral.
Speaker Change: Stabilized LTV, which measures the estimated value of the apartments after the rehabilitation is complete, may provide even greater protection.
Paul Frenkiel: One of the accounting estimates as described in the notes to our financial statements is the allowance for credit losses, which is sensitive to a variety of inherent portfolio and external factors. Rebel may be one of the more sensitive portfolios to such facts.
Speaker Change: One of the accounting estimates as described in the notes to our financial statements is the allowance for credit losses, which is sensitive to a variety of inherent portfolio and external factors.
Speaker Change: Rebel may be one of the more sensitive portfolios to such factors.
Paul Frenkiel: In the second quarter of 2024, Rebel Loans, classified as either special mention or substandard, increased to $177.1 million from $165.2 million at March 31, 2024. Each classified loan was evaluated for potential increase in the allowance for credit loss, on the basis of third-party appraisals of related apartment-building collateral, on the basis of as-is and as-stabilized loan-to-value increases in the allowance for specific losses, and the allowance for specific loans The respected weighted average, as-is, and as-stabled LTBs of those classified loans were 81% and 69%, respectively.
Speaker Change: In the second quarter of 2024, Rebel Loans classified as either special mention or substandard increased to $177.1 million from $165.2 million at March 31, 2024.
Speaker Change: Each classified loan was evaluated for potential increase.
Speaker Change: in the allowance for credit losses.
Speaker Change: on the basis of third-party appraisals of related apartment-building collateral. On the basis of as-is and as-stabilized loan-to-values, increases in the allowance for specific loans were not required.
Paul Frenkiel: On the basis of as is and as stabilized, loan to values increases in the allowance for specific losses. and the allowance for specific loans were not required. The respected weighted average as is and as stabled LTVs of those classified loans were 81% and 69%. The current allowance for credit losses for Rebel is primarily based upon historical industry losses for multi-family loans in the absence of significant historical losses within the company's Rebel portfolio. However, as a result of increasing amounts of loan classified as special mention and substandard, the company will evaluate potential related sensitivity of that factor for Rebel.
Speaker Change: The respected weighted average, as-is, and as-stabled LTVs of those classified loans were 81% and 69%.
Paul Frenkiel: The current allowance for credit losses for Rebel is primarily based upon historical industry losses for multifamily loans in the absence of significant historical losses within the company's Rebel portfolio. However, as a result of increasing amounts of loans classified as special mention and substandard, the company will evaluate potential related sensitivity of that factor for Rebel. This evaluation is inherently subjective as it requires material estimates that may be. Non-interest expense for Q2 2024 was $51.4 million, which was 3% higher than Q2 2023.
Speaker Change: The current allowance for credit losses for Rebel is primarily based upon historical industry losses for multifamily loans in the absence of significant historical losses within the company's Rebel portfolio.
Speaker Change: However, as a result of increasing amounts of loan classified as special mention and substandard, the company will evaluate potential related sensitivity of that factor for REBL.
Paul Frenkiel: This evaluation is inherently subjective, as it requires material estimates that may be susceptible to change as more information becomes available.
Speaker Change: This evaluation is inherently subjective, as it requires material estimates that may be susceptible to change as more information becomes available.
Paul Frenkiel: Non-interest expense for Q2 224 was 51.4 million, which was 3% higher than Q2 223. The increase included a 2% increase in salaries and benefits, higher FDIC insurance expense reflecting higher levels of deposits, and higher other real estate owned expense. Book value per share a quarter end increased 15% to $15.77 compared to $13.74 a year earlier, reflecting the impact of retained earnings. In summary, the Bancorp's balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches and related underwriting. Those loan niches have contributed to increased earnings levels, even during periods in which markets have experienced various economic stresses.
Speaker Change: Non-interest expense for Q2 2024 was $51.4 million, which was 3% higher than Q2 2023.
Paul Frenkiel: The increase included a 2% increase in salaries and benefits, higher FDIC insurance expense reflecting higher levels of deposits, and higher other real estate-owned expense. Book value per share at quarter end increased 15% to $15.77 compared to $13.74 a year earlier, reflecting the impact of retained earnings.
Speaker Change: The increase included a 2% increase in salaries and benefits, higher FDIC insurance expense reflecting higher levels of deposits, and higher other real estate-owned expense.
Speaker Change: Book value per share at quarter end increased 15% to $15.77 compared to $13.74 a year earlier, reflecting the impact of retained earnings.
Paul Frenkiel: In summary, Bancorp's balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches and related underwriting. Those loan niches have contributed to increased earnings levels, even during periods in which markets have experienced various economic stressors. Real estate bridge lending is comprised of workforce housing, which we consider to be working class apartments at more affordable rental rates in selected states. We believe that underwriting requirements provide significant protection against loss as supported by LTV ratios based on third-party appraisals.
Speaker Change: In summary,
Speaker Change: The Bancorp balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches and related underwriting. Those loan niches have contributed to increased earnings levels, even during periods in which markets have experienced various economic stresses.
Paul Frenkiel: Real estate bridge lending is comprised of workforce housing, which we consider to be working class apartments at more affordable rental rates in selected states. We believe that underwriting requirements provide significant protection against loss, as supported by LTV ratios based on third party appraisals. S-block and I-block loans are respectively collateralized by marketable securities in the cash value of life insurance, while SBA loans are either 7(a) loans that come with significant government-related guarantees for SBA 405 loans that are made at 50 to 60% LTVs. Additional details regarding our loan portfolios are included in the related tables in our press release, as are the earnings contributions of our payments business, businesses which further enhance our risk profile.
Speaker Change: Real estate bridge lending is comprised of workforce housing, which we consider to be working class apartments at more affordable rental rates in selected states.
Speaker Change: We believe that underwriting requirements provide significant protection against loss as supported by LTV ratios based on third-party appraisals.
Paul Frenkiel: S-Block and I-Block loans are respectively collateralized by marketable securities and the cash value of life insurance. While SBA loans are either 7a loans that come with significant government guarantees or SBA 405 loans that are made at 50 to 60 percent LTI, Additional details regarding our loan portfolios are included in the related tables in our press release, as are the earnings contributions of our payments business, which further enhances our risk profile. The risk profile inherent in the company's loan portfolios, payments, funding sources, and our earnings levels may present opportunities to further increase shareholder value while still prudently maintaining capital levels. Such opportunities include the recently concluded share repurchases of $100 million for the second quarter of 2024 from the original $50 million. I will now turn the call back to Damian.
Speaker Change: S-Block and I-Block loans are respectively collateralized by marketable securities and the cash value of life insurance, while SBA loans are either 7A loans,
Speaker Change: that come with significant government related guarantees for SBA 405 loans that are made at 50 to 60 percent LTVs.
Speaker Change: Additional details regarding our loan portfolios are included in the related tables in our press release as are the earnings contributions of our payments business.
Paul Frenkiel: The risk profile inherent in the company's loan portfolios, payment funding sources, and our earnings levels may present opportunities to further increase shareholder value, while still prudently maintaining capital levels.
Speaker Change: businesses which further enhances our risk profile. The risk profile inherent in the company's loan portfolios, payment funding sources, and our earnings levels may present opportunities to further increase shareholder value while still prudently maintaining capital levels.
Paul Frenkiel: Such opportunities include the recently concluded share repurchases of $100 million for the second quarter of 2024 from the original $50 million.
Speaker Change: Such opportunities include the recently concluded share repurchases of $100 million for Q2 2024 from the original $50 million.
Damian Kozlowski: I will now turn the call back to Damian. Thank you, Paul.
Damian M. Kozlowski: Thank you, Paul. Operator, please open the line for questions.
Speaker Change: I will now turn the call back to Damian.
Operator: Operator, please open the line for questions. The floor is now open for questions. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. You may withdraw your question by pressing star two. Again, to ask a question, please press star one now.
Damian M. Kozlowski: Thank you, Paul. Operator, please open the line for questions.
Operator: The floor is now open for questions. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. You may withdraw your question by pressing star 2. Again, to ask a question, please press star 1 now. Our first question will come from David Feaster with Raymond James. Please go ahead.
Speaker Change: The floor is now open for questions. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. You may withdraw your question by pressing star 2. Again, to ask a question, please press star 1 now.
David Feaster: Our first question will come from David Feaster with Raymond James. Please go ahead.
Speaker Change: Our first question will come from David Feaster with Raymond James. Please go ahead.
Damian Kozlowski: All right, good morning, everybody. Good morning, David.
David Pipkin Feaster: I wanted to first touch on the Rebel book quickly, you know. I was hoping to get a bit more update on that Rebel Oreo loan. It's great to see the buyer lined up. Still a decent amount of time for that to close, though, I guess, could you talk about the plans in the intermediate term, you know, with the construction and timeline for that? And then just with the non-accrual migration you've seen more broadly, is there any commonality with where you're seeing that migration from a regional perspective or anything?
David Feaster: I wanted to first touch on the Rebel book quick. You know, I was hoping to get a bit more update on that Rebel Oreo loan. You know, it's great to see the buyer lined up; still a decent amount of time for that to close, though.
David Pipkin Feaster: Alright, good morning everybody.
Speaker Change: Good morning, David.
David Pipkin Feaster: I wanted to first touch on the Rebel book quick, you know, I was hoping to get a bit more update on that Rebel Oreo loan, you know, it's great to see the buyer lined up.
Damian Kozlowski: I guess could you talk about the plans in the intermediate term, you know, with the construction and timeline for that. And then just with the non-accrual migration, you see more broadly. Is there any commonality with where you're seeing that migration from a regional or perspective or anything. So first part is it's on track. It's the property in Houston. And we should be pretty much finished with the work going through the summer to the close. And so the buyer is involved and has done due diligence on the property. And is involved in the plan, the executed plan.
David Pipkin Feaster: Still a decent amount of time for that to close though. I guess, could you talk about the plans in the intermediate term, you know, with the construction and timeline for that, and then just with the non-accrual migration you've seen more broadly, is there any commonality with with where you're seeing that migration from a regional or perspective or anything?
Damian M. Kozlowski: So, the first part is, it's on track. It's the property in Houston.
Speaker Change: So, first part is, it's on track. It's the property in Houston.
Damian M. Kozlowski: And we should be pretty much finished with the work going through the summer to the close. And so the buyer is involved and has done due diligence on the property and is involved in the plan, the executed plan. The trend in the book is really from that 21-22 vintage, where there's been stress because of the rise of interest rates and also the supply problems that happened during the pandemic.
Speaker Change: And we should be pretty much finished with the work going through the summer to the close. And so the buyer is involved and has done due diligence on the property and is involved in the plan, the executed plan.
Damian Kozlowski: The trend in the book is really from that 21, 22 vintage. Once again, there's been stress because of the rise of interest rates. And also the supply problems that were that happened during the pandemic. So you get it when you're not on plan and you're off that plan. It could be time or cost. It will, it will be have a weakness, and that weakness may drive that loan into the substandard. So that's the credit migration that we've seen. So we're working very diligently with our sponsors in order to help them. If they're off plan, usually, if there's any significant off plan, the sponsor will put in additional equity, or we won't disperse our own funds.
Speaker Change: The trend in the book is really from that
Speaker Change: 21-22 vintage. Once again, there's been stress because of the rise of interest rates and also the supply.
Damian M. Kozlowski: So you get, when you're not on plan and you're off that plan, it could be time or cost. It will, it will be, have a weakness, and that weakness may drive that loan into substandard. So that's the credit migration that we've seen. So we're working very diligently with our sponsors in order to help them if they're off plan. Usually, if there are.
Speaker Change: problems that were that happened during the pandemic so you get it when you're not on plan and you're off that plan it could be time or cost
Speaker Change: It will have a weakness, and that weakness may drive that loan into substandard. So that's the credit migration.
Speaker Change: that we've seen. So we're working very diligently with our sponsors in order to help them if they're off plan. Usually if there's any significant off plan, the sponsor will put in additional equity or we won't disperse our own funds.
Damian M. Kozlowski: Any significant off plan, the sponsor will put in additional equity, or we won't disperse our own funds. So most of them are, you know, we don't have a lot of non-paying ones at this point, which is a very good sign. And there are clearly pools of capital and sponsors who are in the market now looking for these opportunities. When you have these low leverage levels, there is capital available to recap these loans, as we've demonstrated here with that Aubrey loan. So there could be more credit migration, but we're not seeing it. You know, we're not seeing losses at this point.
Damian Kozlowski: So most of them are, you know, we don't have a lot of, you know, nonpaying at this point, which is a very good sign. And there's clearly pools of capital and sponsors who have a war in the market now looking for these opportunities. When you have these low leverage levels, you know, there is capital available to recap these loans, as we've demonstrated here with that Aubrey loan. So there could be more credit migration, but we're not seeing, you know, we're not seeing losses at this point.
Speaker Change: So most of them are, you know, we don't have a lot of...
Speaker Change: You know non-paying at this point, which is a very good sign and there's clearly pools of capital and sponsors
Speaker Change: who are in the market now looking for these opportunities.
Speaker Change: When you have these low leverage levels, you know, there is capital available to recap these loans as we've demonstrated here with that Aubrey loan. So, there could be more credit migration, but we're not seeing...
Damian M. Kozlowski: Okay, that's helpful. And then, obviously, the regulatory backdrop is challenging. We've seen some competitors under pressure, but I'm curious, how does this benefit you and your pipeline? I mean, understanding your pipeline is always full. We've talked about that in the past, but have you seen any shift? Are you seeing maybe stronger or higher-quality partners come to you? And is this giving you maybe more pricing power, just kind of given the strength of your platform? Curious what you're seeing. Yes, and there's no doubt that it's happening.
David Feaster: Okay, that's helpful. And then obviously, the regulatory backdrops challenging. We've seen some competitors under pressure, but I'm curious. How does this benefit you and your pipeline? I mean, you're understanding; your pipeline is always full. We've talked about that in the past, but have you seen any shift? Are you seeing maybe stronger or higher quality partners come to you?
Speaker Change: You know, we're not seeing losses at this point.
Speaker Change: Okay, that's helpful. And then obviously the regulatory backdrop is challenging. We've seen some competitors under pressure, but I'm curious
Speaker Change: How does this benefit you and your pipeline? I mean, understanding your pipeline is always full. We've talked about that in the past, but have you seen any shift? Are you seeing maybe stronger or higher quality partners come to you?
Damian Kozlowski: And is this given you maybe more pricing power, just kind of given the strength of your platform curious, curious what you're seeing? Yes. And there's no doubt that's happening. We can't facilitate. There is broad dislocation across the entire banking as a service space and a lot of regulatory scrutiny. Things like third party, risk management, model risk management, fair lending, BSA, AML, all these things are under scrutiny with the regulators, and we've invested over the last seven years in building a portfolio. And totally rebuilding our, you know, our middle office and technology and compliance envelope to be compliant with regulatory expectations.
Speaker Change: And is this giving you maybe more pricing power, just kind of given the strength of your platform? Curious what you're seeing.
Damian M. Kozlowski: Yes, and there's no doubt that it's happening. We can't facilitate it; there is broad dislocation across the entire banking as a service space and a lot of regulatory scrutiny. Things like third-party risk management, model risk management, fair lending, BSA, AML, all these things are under scrutiny by the regulators, and we've invested over the last seven years in building a portfolio and totally rebuilding our middle office and technology and compliance envelope to be compliant with regulatory expectations. So, we can't take smaller programs.
Speaker Change: Yes, and there's no doubt that's happening.
Speaker Change: We can't...
Speaker Change: facilitate. There is broad dislocation across the entire banking as a service space and a lot of regulatory scrutiny.
Speaker Change: things like third-party risk management, model risk management, fair lending, BSA, AML, all these things are
Speaker Change: under scrutiny with the regulators. And we've invested over the last seven years in building a portfolio and totally rebuilding our
Speaker Change: You know our middle office and technology and compliance envelope
Damian Kozlowski: So, but we can't take smaller programs. There's been incoming is substantial, and we're working with large partners who are potentially looking to move because of the regulatory scrutiny. And no doubt it does have an effect; a positive effect on pricing. We've maintained basically our pricing over the last, you know, five years and hasn't really moved very much. And, but our cost have gone down because our platform is very scalable. So, you don't see a big build in our cost structure, and that's due to the fact that we're incredibly scalable. So, incremental programs do have a big impact on profitability because of the scalability of the cost, but also the size of the programs we're putting on.
Speaker Change: to be compliant with regulatory expectations.
Damian M. Kozlowski: There's been, the incoming is substantial and we're working with large partners who are potentially looking to move because of the regulatory scrutiny. And no doubt, it does have an effect, a positive effect on pricing. We've maintained basically our pricing over the last. Andres Viroslav, Paul Frenkiel, David Feaster, Michael Perito, Timothy Switzer, Andres Viroslav, Paul Frenkiel, Bancorp Inc. Andres Viroslav, Paul Frenkiel, David Feaster, Michael Perito, Timothy Switzer, Andres Viroslav, Paul Frenkiel, Bancorp Inc.
Speaker Change: But we can't take smaller programs, there's been, the incoming is substantial and we're working with
Speaker Change: large partners who are potentially looking to move because of the regulatory scrutiny. And no doubt it does have an effect, a positive effect on pricing. We've maintained basically our pricing over the last
Speaker Change: You know, five years, it hasn't really moved very much.
Speaker Change: But our costs have gone down because our platform is very scalable, so you don't see a big build in our cost structure. And that's due to the fact that we're incredibly scalable. So incremental programs do have a big impact on profitability.
Speaker Change: Because of the scalability of the cost, but also the size of the programs we're putting on. Usually they're much more profitable up front, too, and they bear the cost of implementation. And they're tiered.
Damian Kozlowski: Usually they're much more profitable up front, too, and they bear the cost of implementation, and they're tiered. So, as they grow their volume substantially, the pricing will adjust. But, you know, it gets more profitable because of the scalability of the platform. Go.
Speaker Change: grow their volumes substantially, the pricing will adjust, but it gets more profitable because of the scalability of the platform.
Speaker Change: Thank you.
Timothy Switzer: Thank you. Our next question will come from Tim Switzerland with KVW.
Timothy Jeffrey Switzer: Thank you. Our next question will come from Tim Switzer with KBW. Please go ahead.
Timothy Switzer: Please go ahead. Good morning. Thank you guys for taking my questions.
Speaker Change: Thank you. Our next question will come from Tim Switzer with KBW. Please go ahead.
Timothy Jeffrey Switzer: Hey, good morning. Thank you guys for taking the time to answer my questions. I have kind of a follow-up on the BASC regulatory landscape here. So the Fed and some of the other regulators published a joint press release yesterday kind of discussing the risk of what they call third-party deposit arrangements. And they requested additional information from participants. Um, can you please provide your thoughts on how regulator expectations are changing for these BASC partnerships?
Timothy Switzer: I have kind of a follow-up on the best regulatory landscape here. So, the Fed and some of the other regulators published a joint press release yesterday. Kind of discussing the risk of what they call third party deposit arrangements. And they requested additional information from participants. Can you provide. You know, your thoughts on how regulatory expectations are changing for these past partnerships. And, you know, if you think there are any significant rule changes coming, particularly given the developments over. When you say the last year, but particularly with the SNF situation, kind of gotten a lot of media headlines.
Timothy Jeffrey Switzer: Hey, good morning. Thank you guys for taking my questions. I have kind of a follow-up on the Bass Regulatory landscape here.
Timothy Jeffrey Switzer: The Fed and some of the other regulators published a joint press release yesterday kind of discussing the risk of what they call third-party deposit arrangements, and they requested additional information from participants. Can you provide
Speaker Change: You know, your thoughts on how regulator expectations are changing for these BAS partnerships and, you know, if you think there are any significant rule changes coming.
Timothy Jeffrey Switzer: And, you know, if you think there are any significant rule changes coming, particularly given the developments over the last year, but particularly with the SINAPH situation, which has kind of gotten a lot of media headlines, might start to get some politician attention as well.
Speaker Change: particularly given the developments over, I mean you say the last year, but particularly with the SNAF situation, it's kind of gotten a lot of media headlines and you know might start to get some politician attention as well.
Damian Kozlowski: And, you know, might start to get some politician attention as well. The regulatory expectation is that if you're doing these banking service arrangements, that you have to validate. The operations on a third party basis. So, they really think of it as you running the business, that it's not outside of you. So, you have third party risk management, the SAML consumer compliance, Reggie, whatever it is. You have to overlook and assure that it's compliant. And I think that because the industry grew so quickly, there were a lot of small players, a lot of smaller players. Players got into the market without building out a sufficient infrastructure.
Damian M. Kozlowski: The regulatory expectation is that if you're doing banking and service arrangements, you have to validate the operations on a third-party basis. They really think of it as you running the business, that it's not outside of you.
Speaker Change: The regulatory expectation is that if you're doing these are banking and service arrangements that you have to validate
Speaker Change: The operations on a third-party basis, so...
Damian M. Kozlowski: So you have third-party risk management, BSA, ML, consumer compliance, reggie, whatever it is, you have to oversee and assure that it's compliant. And I think that because the industry grew so quickly, there were a lot of small players, a lot of smaller players got into the market without building out sufficient infrastructure, that the regulators are now going back and ensuring that that's true. They've obviously gone back, and there have been inadequacies in people's ability to demonstrate that validation.
Speaker Change: I think that because the industry grew so quickly, there were a lot of small players, a lot of smaller players got into the market without building out sufficient infrastructure, that the regulators are now going back and ensuring that that's true.
Damian Kozlowski: That the regulators are now going back and ensuring that that's true. And they've obviously gone back, and there's been inadequacies in people's ability to demonstrate that validation. And so, while we were under scrutiny, obviously years ago, and under consent orders, we worked very closely with the FDIC. And now, with the OCC and the novel banking group, I think we had a big head start on creating that compliant model and making sure that that validation can happen. And that lowers, as far as the regulators' view, you're more compliant in your far lower risk. And so, now, obviously, now that that scrutiny has come to the industry, we are ready at the finish line, and people now have to catch up.
Speaker Change: They've obviously gone back and there's been inadequacies in people's ability to demonstrate that validation.
Damian M. Kozlowski: And so while we were under scrutiny, obviously, years ago, and under consent orders, and we worked very closely with the FDIC. And now, with the OCC and the Novel Banking Group, I think we have a big head start on creating that compliant model and making sure that that validation can happen. And that lowers, as far as the regulators view, you know, you're more compliant, and you're a far lower risk. And so now, obviously, now that that scrutiny has come to the industry, we're already at the finish line, and people now have to catch up.
Speaker Change: And so, while we were under scrutiny...
Speaker Change: obviously years ago and under consent orders and we worked very closely with the FDIC and now with the OCC and the novel banking group I think we will had a big head start on creating that compliant model.
Speaker Change: and making sure that that validation can happen.
Speaker Change: And that lowers, as far as the regulators view, you know, you're more compliant and you're far lower risk. And so now, obviously, now that that scrutiny has come to the industry, we're already at the finish line and people now have to catch up. The thing I would say is...
Timothy Switzer: The thing I would say is, to be that compliant platform that can do that validation is incredibly... So we have a fair amount of broad verticals, 15. We have great positions across many industries. So we have the volume and the ability to invest in that platform. So it's unlikely that everyone in the industry would be able to do that, and some have exited. And so that dislocation will continue for some time. Okay, understood. That was a great summary. I guess just to be a little bit more specific to the Bancorp, do you think there's anything because the regulators have kind of had this expectation for a while that's just not really cracking down on it.
Damian M. Kozlowski: The thing I would say is... be that compliant platform that can do that validation is incredibly expensive. So, you know, we have a fair number of broad verticals, and we have great positions across many industries. So we have the volume and the ability to invest in that platform. But it's unlikely that everyone in the industry would be able to do that, and some have exited. And so that dislocation will continue for some time.
Speaker Change: To be that compliant platform that can do that validation is incredibly important.
Speaker Change: expensive so you know we have a fair amount of broad verticals 15 we have great positions across many industries so we have the volume
Speaker Change: and the ability to invest in that platform so it's unlikely that everyone in the industry would be able to do that and some have exited and so that dislocation will continue for some time.
Timothy Jeffrey Switzer: Okay, understood. That was a great summary.
Speaker Change: Okay, understood. That was a great summary. I guess just to be a little bit...
Timothy Jeffrey Switzer: I guess just to be a little bit..., more specific to Bancorp, do you think there's anything? Because the regulators have kind of had this expectation for a while. They're just now really cracking down on it. Do you think there's anything new that would, maybe? I know you're continuing to invest quite a bit, but is there anything new the regulators might come out with or change your expectations a little bit that will change how you operate or require a little bit additional investment to stay ahead of it?
Speaker Change: More specific to the Bancorp, do you think there's anything...
Speaker Change: Because the regulators have kind of had this expectation for a while. It's just not really cracking down on it Do you think there's anything new that would maybe?
Damian Kozlowski: But do you think there's anything new that would maybe, I know you continue to invest quite a bit. There's anything new to regulators might come out with or change the expectation a little bit that will change how you operate or require a little bit additional investment to stay ahead of it. So we always invest in the front. So you know, it took us years to we didn't get into credit sponsorship in three months. We've been investing in that platform for years. We're going to do the same thing with embedded finance as we're now starting to build that platform.
Speaker Change: I know you continue to invest quite a bit, but is there anything new the regulators might come out with or change their expectation a little bit that will change how you operate or require a little bit additional investment to stay ahead of it?
Damian M. Kozlowski: So we always invest in the front. So it took us years to get into credit sponsorship. We didn't get into credit sponsorship for three months.
Speaker Change: So, um...
Speaker Change: We always invest in the front. So, you know, it took us years to... We didn't get into credit sponsorship in three months. We've been investing in that platform for years. We're going to do the same thing with embedded finance as we now are starting to build that platform.
Damian M. Kozlowski: We've been investing in that platform for years, and we're gonna do the same thing with embedded finance as we now are starting to build that platform. And we work very, very closely with the regulators to understand their expectations, and we adjust, ongoing, right? So, of course, as a leader in this space.
Damian Kozlowski: And we work very, very closely with the regulators to understand their expectations. And we adjusted ongoing, right. So, of course, as a leader in this space, increased scrutiny will be placed on all our competitors, large and small, but also will be increased on us. But we've got such a multi-year head start in time and investment that it's far easier for us to adjust. And this has been going on for years because when we were in trouble with the consent orders, there wasn't great agreement at the time. I believe in the regulatory bodies of exactly how you regulate that validation process.
Speaker Change: And we work very, very closely with the regulators to understand their expectations, and we adjust it ongoing, right? So, of course, as a leader in this space,
Damian M. Kozlowski: Increased scrutiny will be placed on all our competitors, large and small, but it will also be placed on us. But we've got such a multi-year head start in time and investment that it's far easier for us to adjust. And this has been going on for years because when we were in trouble with the consent orders, there wasn't great agreement at the time, I believe, in the regulatory bodies about exactly how you regulate that validation process I was talking about, that compliant third-party risk management.
Speaker Change: Increased scrutiny will be placed on all our competitors, large and small, but also will be increased on us. But we've got such a multi-year headstart in time and investment that it's far easier for us to adjust.
Speaker Change: And this has been going on for years because...
Speaker Change: When we were in trouble with the consent orders, there wasn't great agreement at the time, I believe, in the regulatory bodies of exactly...
Damian Kozlowski: I was talking about that compliant third party risk management. And I think there's a lot more contextual understanding by both the industry and the regulators now. So that's some of the problem that the smaller players are having and be able to make those type of investments with much more lower volume, much earlier stage programs. So they're going to have a greater dislocation between expectations and actuality. And so we don't expect to have a big dislocation. We're going to continue to improve our platform as regulators change your expectations. We will invest the necessary resources, whatever they are, in order to meet those expectations.
Speaker Change: how you regulate.
Speaker Change: That validation process I was talking about, that compliant third-party risk management.
Damian M. Kozlowski: And I think there's a lot more contextual understanding by both the industry and the regulators now. So that's some of the problem that the smaller players are having with being able to make those type of investments with much lower volume, much earlier stage programs. So they're going to have a greater dislocation between expectations and actuality. And so we don't expect to have a big dislocation. We're going to continue to improve our platform as regulators change our expectations.
Speaker Change: And I think there's a lot more contextual understanding by both the industry and the regulators now.
Speaker Change: So that's some of the problem that the smaller players are having.
Speaker Change: and be able to make those type of investments with much more lower volume, much earlier stage programs.
Speaker Change: So they're going to have a greater dislocation between expectations and actuality. So we don't expect to have a big dislocation. We're going to continue to improve our platform as regulators.
Speaker Change: Change your expectations. We will invest.
Damian M. Kozlowski: We will invest the necessary resources, whatever they are, in order to meet those expectations. However, if they change it too much, it's likely to affect everybody else more than us, because we're closer. We're, by definition, going to be closer to those expectations on an ongoing basis.
Speaker Change: The necessary resources, whatever they are, in order to meet those expectations. However, if they change it too much, it's likely to affect everybody else more than us, because we're closer, we're by definition going to be closer to those expectations on an ongoing basis.
Timothy Switzer: However, if they change it too much, it's likely to affect everybody else more than us because we're, by definition, going to be closer to those expectations on an ongoing basis. Okay, totally understood.
Timothy Jeffrey Switzer: Okay, totally understood. Thank you. I'll jump back in the queue.
Timothy Switzer: Thank you. I'll jump back in the queue. Thank you.
Speaker Change: You okay? Totally understood. Thank you. I'll jump back in the queue.
Frank Joseph Schiraldi: Thank you. Our next question will come from Frank Schiraldi with Piper Sandler. Please go ahead.
Frank Schiraldi: Our next question will come from Frank's to Aldi with Piper Sandler. Please go ahead.
Speaker Change: Thank you. Our next question will come from Frank Schiraldi with Piper Sandler. Please go ahead.
Frank Joseph Schiraldi: Good morning. Frank. Given what I think is still a limited supply of new credit in this emerging sector, is it safe to assume that Bancorp would be financing the sale of this property in Houston?
Frank Schiraldi: Good morning. Good morning, Frank.
Frank Schiraldi: Well, I think it's still limited supply for new credit in the in this rebel sector.
Frank Joseph Schiraldi: Good morning.
Frenk: Good morning, Frank.
Speaker Change: Given the, what I think is still limited supply for new credit.
Damian Kozlowski: Is it safe to assume that that bank core would be financing the sale of this property and use. Oh, no. We'll be out of that property.
Frank Joseph Schiraldi: in this rebel sector. Is it safe to assume that that Bancorp would be financing the sale of this?
Damian M. Kozlowski: Oh, no. We'll be out of that property. There'll be new financing in place. Okay.
Speaker Change: Property in Houston.
Damian Kozlowski: Don't be new financing in place.
Frank Joseph Schiraldi: Oh no, we'll be out of that property. There'll be new financing in place.
Frank Joseph Schiraldi: Okay, great. And then, Paul, I think you mentioned that, you know, you take a look at criticized classes here, even in, in lieu of any historic losses, you could, would consider, I guess, and tell me if I'm, if I'm paraphrasing correctly, that you consider reserve builds here, in that book, and I'm just wondering how we would think about that as we sit today. Is that potentially Is that a potential risk to the $4.35 target? And how should we think about the potential for any reserve builds over the next couple of quarters?
Paul Frenkiel: Okay, great.
Frank Schiraldi: And then Paul, I think you mentioned that, you know, you take a look at a criticized class wise here, even in, in lieu of any historic losses, you could would consider a guess and tell me if I'm, if I'm power phasing correctly, that you consider reserved builds here.
Frank Joseph Schiraldi: Okay, great. And then, Paul, I think you mentioned...
Speaker Change: That, you know, you take a look at criticized classifieds here, even in lieu of any historic losses, you could, would consider, I guess, and tell me if I'm, if I'm power phasing correctly, that you consider reserve builds here.
Paul Frenkiel: And I'm just wondering how we would think about that as we sit today. Is that potentially meaningful or just incremental? Is that a potential risk to the $4.35 target? Just how we should think about the potential for any reserved builds over the next couple of quarters. So, we looked at each of the special mention and substandard loans, and none of them required an individual reserve. So, as we've been saying, we don't expect any losses, notwithstanding that our classified loans are up.
Paul Frenkiel: in that book and I'm just wondering how we would think about that as we sit today is that
Speaker Change: Potentially meaningful or just incremental? Is that a potential risk to the $4.35 target? Just how we should think about the potential for any reserve builds over the next couple of quarters.
Paul Frenkiel: So we looked at each of the special mention and substandard loans, and none of them required an individual reserve.
Speaker Change: So, we looked at each of the special mention and substandard loans.
Paul Frenkiel: So, as we've been saying, we don't expect any losses, notwithstanding that our classified loans are up. But CECL requires you to look at sensitivity to various factors. And clearly, if there are loans that have some type of issue, then you should take a special look at the trends in those loans and the possible impact on the allowance for credit loss. So, that's what we're doing, and, um...
Speaker Change: And none of them required an individual reserve, so as we've been saying, we don't expect any losses, notwithstanding that our classified loans are up.
Paul Frenkiel: But, Cecil requires you to look at sensitivity to various factors, and clearly if there are loans that have some type of issue, then you should take a special look at the trends in those loans and the possible impact on the allowance for credit losses. So, that's what we're doing, and so, yes, it is possible that we would recognize some additional provision, and yes, that would impact the guidance. But, as I said before, we don't really expect any losses, so I think you have to make that differentiation. If Cecil, there's some way that Cecil implies that there's additional allowance, then we would take that, but we don't expect any actual losses.
Speaker Change: But CSO requires you to look at sensitivity
Speaker Change: to various factors, and clearly, if there are loans that have some type of issue,
Speaker Change: Then you should take a special look at the trends in those loans and the possible impact on the allowance for credit losses.
Speaker Change: So that's what we're doing.
Paul Frenkiel: So, yes, it is possible that we would recognize some additional provision, and yes, that would impact the guidance, but, As I said before, we don't really expect any losses, so I think you have to make that differentiation. If CECL in some way implies that there's additional allowance, then we would take that, but we don't expect any actual loss.
Speaker Change: recognize some additional provision, and yes, that would impact the guidance, but
Speaker Change: As I said before,
Speaker Change: then we would take that, but...
Speaker Change: We don't expect any actual losses.
Paul Frenkiel: Okay.
Frank Schiraldi: And, I guess that's a process ongoing now, and well, just one last one for RICU.
Frank Joseph Schiraldi: And, uh... And I guess that's a process ongoing now. And... And well, just one last one before I retreat. Just in terms of the move in the share price here, the new guy, just wanna make sure, just in terms of the current buyback, the plan, obviously double it up in the second quarter, but the buyback to 50 million a quarter, is that still something you guys are very comfortable with through the back half of the year?
Speaker Change: And, uh...
Speaker Change: And I guess that's a process ongoing now.
Speaker Change: And, well, just one last one before I recue. Just in terms of the move in the share price here,
Damian Kozlowski: Just in terms of the move in the share price here, the new guy, just want to make sure, just in terms of the current buyback to plan, obviously double it up in the second quarter, but the buyback to 50 million a quarter, is that still something you guys are very comfortable with through the back half of the year? Yes, they're; it'll, we're very comfortable with the 50. The 100 was a very unique opportunity. We bought the shares at 33, 13. I believe.
Speaker Change: The new guy, just want to make sure, in terms of the current buyback, the plan, obviously double it up in the second quarter, but the buyback to $50 million a quarter, is that still something you guys are very comfortable with through the back half of the year?
Damian M. Kozlowski: Yes, they're, they're, it'll. We're very comfortable with the 50. The 100 was a very unique opportunity. We bought the shares at 3313, I believe. But we'll probably do the $100 million, unless the board decides otherwise, but I think it'll be the $100 million. And then when we give guidance, we'll also... Andres Viroslav, Paul Frenkiel, Damian Kozlowski, David Feaster, Michael Perito, Timothy Switzer, the Tier 1 leverage ratio and the other ratio. So we have an extremely strong capital position, and we're.
Speaker Change: Yes, they're, they're, it'll...
Speaker Change: We're very comfortable with the 50. The 100 was a very unique
Speaker Change: opportunity. We bought the shares at $33K, $13K I believe.
Damian Kozlowski: But we'll probably do the 100 million; they, unless the board decides otherwise, but I think it'll be the 100 million. And then when we give guidance, well, so. Okay.
Speaker Change: But we'll probably do the $100 million, unless the board decides otherwise, but I think it'll be the $100 million. And then when we give guidance, we'll also...
Damian Kozlowski: Mayor of the buyback next year off the net income. Right now we have sufficient capital. Even this extra 50 million didn't really change our ratios that much. And the Tier 1 leverage ratio and the other ratio. So it's an extremely strong capital position. And we pretty much have around the amount of capital we'll ever need because of the Durban Amendment limitation on the 10 billion banks. So we're in an incredibly good earnings and capital position. And we will continue to buy back the shares when they're undervalued. And we believe those shares are undervalued as of today.
Speaker Change: mirror the buyback next year off the net income. Right now we have sufficient capital, even the extra 50 million didn't really change our ratios that much in the
Speaker Change: Tier 1 leverage ratio and the other ratio. So we're extremely strong capital position and we're we pretty much have around the amount of capital we'll ever need because of the
Damian M. Kozlowski: We pretty much have around the amount of capital we'll ever need because of the Durbin Amendment limitation on the $10 billion bank. So we're in an incredibly good earnings and capital position, and we will continue to buy back the shares when they're undervalued, and we believe those shares are undervalued as of today.
Speaker Change: Durbin Amendment limitation on the 10 billion bank. So we're in an incredibly good earnings and capital position.
Speaker Change: and we will continue to buy back the shares when they're undervalued and we believe those shares are undervalued as of today.
Frank Schiraldi: Right. Thank you.
Frank Joseph Schiraldi: Great. Thank you.
Speaker Change: Great. Thank you.
David Pipkin Feaster: Thank you. Our next question will be a follow-up from David Feaster. Please go ahead.
David Feaster: Our next question will be a follow-up from David Feaster. Please go ahead.
Speaker Change: Thank you. Our next question will be a follow-up from David Feaster. Please go ahead.
David Pipkin Feaster: Hey, thanks for taking the follow-up. You've got a lot of pretty exciting initiatives going on. I was hoping to touch on some of them. We're starting to see the benefits of the credit sponsorship, which we've talked about. You alluded to embedded finance, which you're rolling out. We've also talked about monetizing your risk and compliance functions. I'm just curious if you could give us an update on those and any other initiatives you're working on and maybe how AI could play into that because that's a pretty big buzzword these days. Just hoping to get an update on some of the things you're working on and what you're excited about.
David Feaster: Thanks for taking the follow-up. You've got a lot of pretty exciting initiatives going on. I was hoping to touch on some of them. We're starting to see the benefits of the credit sponsorship, which we talked about. You alluded to embedded finance, which you're rolling out. We've also talked about monetizing your risk and compliance functions.
David Pipkin Feaster: Hey, thanks for taking the follow-up.
Speaker Change: You've got a lot of pretty exciting initiatives going on. I was hoping to touch on some of them. We're starting to see the benefits of the credit sponsorship, which we've talked about. You alluded to embedded finance, which you're rolling out. We've also talked about monetizing your risk and compliance functions.
Damian Kozlowski: I'm just curious if you could give us an update on those and any other initiatives you're working on, and maybe how AI can play into that because that's a pretty big buzzword these days. Just hoping to get an update on some of the things you're working on and what you're excited about.
Speaker Change: I'm just curious if you could give us an update on those and any other initiatives you're working on and maybe how AI could play into that because that's a pretty big buzzword these days. Just hoping to get an update on some of the things you're working on and what you're excited about.
Damian M. Kozlowski: Well, you're right about AI, so we have a whole team that's working on how we're going to use AI in the future, including a technological vision. So we really have to really think about that.
Damian Kozlowski: Well, you're right about AI.
Damian Kozlowski: So we have a whole group that's working on how we're going to use AI in the future and including a technology vision. So we really have to really think about that. We think that's a lot and totally redoing our tech stack and redundancy and everything, and strengthening our cybersecurity walls. All that stuff has been ongoing, but we're really thinking about as we transform the bank into really a fit tech-centered platform and not just being a majority of our business, but really being focused on that. We're, of course, thinking through the tech and AI requirements. It's incredibly exciting, and the credit sponsorship side, all the hard work is paying off.
Speaker Change: Well, you're right about AI, so we have a whole group.
Speaker Change: that's working on how we're going to use AI in the future and including a technology vision. So we really have to really think about that. We've invested a lot.
Damian M. Kozlowski: We've invested a lot in totally redoing our tech stack and redundancy and everything and strengthening our cybersecurity walls. All that stuff has been ongoing, but we're really thinking about as we transform the bank into really a fintech-centered platform and not just being, you know, a majority of our business, but really being focused on that, we're, of course, thinking through the tech and AI requirements. It's incredibly exciting, and on the credit sponsorship side, all the hard work is paying off.
Speaker Change: and totally redoing our tech stack and redundancy and everything and strengthening our cybersecurity walls. All that stuff has been ongoing, but
Speaker Change: We're really thinking about as we transform the bank into really a Fintech centered platform and that's just being you know a majority of our business But really being focused on that we're of course thinking through the tech and AI requirements
Damian M. Kozlowski: We have multiple programs and multiple partners that want to implement at the Bancorp. We could easily see this first tier, we're in the 70s, growing now; we could see upwards, using the liquidity of our partners to lend to their clients. That's very exciting, you know, when we think about APEX 2030's balance sheet, five years from now, we'll probably, we hope to have 20 programs, it's going to mirror banking as a service size, 20 programs, most of them will be extremely balance sheet light, they'll be distributed, but also secured by many of our partners and provide deposits.
Speaker Change: It's incredibly exciting, and the credit sponsorship side, all the hard work is paying off. We have multiple programs and multiple partners that want to implement at the Bancorp. We could easily see this first tier, we're in the 70s.
Damian Kozlowski: We have multiple programs and multiple partners that want to implement at the bank core. We could easily see this first tier we're in the 70s. It's growing now. We could see upwards towards a three to 500 million on the balance sheet at the end of this year, and we could see a billion next year. So that's how fast-growing that is. It's extremely creative because with that business is a also the ecosystem for payments is also connected to that. So it's incredibly profitable business, and very many times the partners will have both the positive at the bank already.
Speaker Change: It's growing now. We could see upwards towards...
Speaker Change: 3 to 500 million on the balance sheet at the end of this year and we could see a billion next year. So that's how fast growing that is.
Speaker Change: It's extremely a creative because with that business is a also the The ecosystem for payments is also connected to that So it's incredibly profitable business and very and many times the partners will have both of the deposits at the bank already So we're in essence
Damian Kozlowski: So, in essence, we're kind of using the liquidity of our partners to lend to their clients. That's very exciting.
Speaker Change: We're kind of using the liquidity of our partners to lend to their clients.
Damian Kozlowski: You know when we think about Apex 2030 balance sheet five years from now, we'll probably, we hope to have 20 programs. It's going to mirror the banking of the service size, 20 programs. Most of it will be extremely balance sheet light. It will be distributed, but also secured by many of our partners and provide the deposits.
Speaker Change: That's very exciting. You know, when we think about APEX 2030 balance sheet...
Speaker Change: Five years from now we'll probably we hope to have 20 programs. It's going to mirror the banking as a service sites 20 programs
Speaker Change: Most of it will be extremely balance sheet light. It'll be distributed, but also secured by many of our partners.
Damian Kozlowski: So that's that's incredibly exciting itself, but the ongoing now building is an embedded finance, which is a program management element, which we don't do today that companies, retail companies, that control their apps. That need a financial services capability within their app, and we would provide that. We would manage that part of it for them. That's a very, very, that's predicted to be a highly growing capability that people will want across the economy. And so we already have, we think, the best banking and service ecosystem, so that applying that to it will be kind of a no brainer, we think, for the marketplace.
Damian M. Kozlowski: So that's incredibly exciting in itself, but the ongoing building is an embedded finance, which is a program management element, which we don't do today, that companies, retail companies that control their apps, need a financial services capability within their app, and we would provide that, we would manage that part of it for them. That's a very, very, that's predicted to be a highly growing economy, and so we already have, we think, the best banking and service ecosystem so that applying that to it will be kind of a no-brainer, we think for the marketplace. And by the way, we've been asked for it a lot already. So people have asked us. Hey, can you do that? Oh, I mean we say well, no, we don't we won't do that today.
Speaker Change: and provide the deposits. So that's incredibly exciting in itself, but the ongoing now building is an embedded finance, which is a program management element, which we don't do today, that companies, retail companies that control their apps,
Speaker Change: that need a financial services capability within their app. And we would provide that. We would manage that part of it for them. That's a very, very – that's predicted to be a highly growing
Speaker Change: capability that people will want across
Speaker Change: the economy and so we already have we think the best banking and service ecosystem so that applying that to it will be kind of a no-brainer we think for the marketplace and by the way we've been asked for it a lot already
Damian Kozlowski: And by the way, we've been asked for it a lot already. So people have asked us, "Hey, can you do that element?" We say, well, no, we don't, we don't do that today. And we've actually partnered with other, other people in the space to talk about providing that in certain cases. So the, you know, those two things alone are enormous fee opportunities and balance sheet opportunities in themselves.
Damian M. Kozlowski: We've actually partnered with other people in the space to talk about providing that in certain cases. So, you know, those two things alone are enormous fee opportunities and balance sheet opportunities in themselves. So, you know, when we say apex, we're talking about a 3-4 X on our current fees of 100 million in five to seven years, and that may be a hundred or two hundred of an increase in the spread revenue, so It's I think it's going to be played out for credit sponsorship in the near term. You'll see those balances grow very aggressively, and then for embedded finance. We're going to, we're going to walk and be very deliberate and make sure that we provide the best in class and that capability to the partners, and so we're not rushing anything. And our base business is growing very aggressively. So, and we've been asked by large the largest players in them in the marketplace to think about them joining our ecosystem. So we're very excited. That's
Speaker Change: So, people have asked us, hey, can you do that element? We say, well, no, we don't. We don't do that today, and we've actually partnered with other...
Speaker Change: and other people in the space to talk about providing that in certain cases.
Speaker Change: So, you know, those two things alone.
Speaker Change: are enormous fee opportunities and balance sheet opportunities in themselves. So, you know, when we say apex, we're talking about a three, four X on our current fees of a hundred million in five to seven years.
Damian Kozlowski: And so, you know, when we say apex, we, we're talking about a three, four X on our current fees of 100 million in five to seven years. And that may be a hundred to 200 of increase in the spread revenue. So it's very exciting. I think it's going to be played out for credit sponsorship in the near term. You'll see those balances grow very aggressively. And then for bed finance, we're going to walk and be very deliberate and make sure that we provide the best in class and that capability to the partners. And so we're not rushing anything.
Speaker Change: And that may be 100 or 200 of increase in the spread revenue. So, it's very exciting.
Speaker Change: I think it's going to be played out for credit sponsorship in the near term. You'll see those balances grow very aggressively. And then for embedded finance, we're going to walk and be very deliberate.
Speaker Change: And make sure that we provide the best in class and that capability to the partners, and so we're not rushing anything. And our base business is growing very aggressively, so, and we've been asked...
Damian Kozlowski: And our base business is growing very aggressively.
Damian Kozlowski: So, and we've been asked by large, the largest players in the marketplace to think about them joining our ecosystem. So we're very excited.
Speaker Change: by the largest players in the marketplace to think about them joining our ecosystem, so we're very excited.
David Pipkin Feaster: That's great. Thank you.
David Feaster: That's great. Thank you.
Frank Joseph Schiraldi: Thank you. We have a follow-up question from Frank Schiraldi. Please go ahead.
Speaker Change: That's great. Thank you.
Frank Schiraldi: We have a follow-up question from Frank Scoraldi.
Frank Schiraldi: Please go ahead. Thanks. You're just back to the, the increase in guide is the primary driver of that credit sponsorship. And just when you talk about balances moving higher in the near term, is something along the lines of, you know, half a billion in balances a reasonable place to land. At the end of this year, and I assume that would be, you know, more than one, one program. Yeah, well, especially with credit sponsorship, yes. No doubt. If we're at three to 500 million in that alone, you're going to see that increase in balances.
Speaker Change: Thank you. We have a follow-up question from Frank Schiraldi. Please go ahead.
Frank Joseph Schiraldi: Thanks. Just back to the increase in guide, is the primary driver of that credit sponsorship, and when you talk about balances moving higher in the near term, is something along the lines of half a billion in balances a reasonable place to land at the end of this year?
Frank Joseph Schiraldi: Thank you.
Frank Joseph Schiraldi: Just back to the increase in guide.
Frank Joseph Schiraldi: is the primary driver of that credit sponsorship. And just when you talk about.
Speaker Change: balances moving higher in the near term.
Frank Joseph Schiraldi: is something along the lines of half a billion in balances, a reasonable place to land at the end of this year. And I assume that would be more than one program.
Damian M. Kozlowski: And I assume that would be more than one program.
Damian M. Kozlowski: Yeah, well, especially with credit sponsorship, yeah. No doubt.
Damian M. Kozlowski: If we're at $300 to $500 million in that alone, you're going to see that increase in balances. The game changer here is one thing that maybe we didn't emphasize enough: deposits. So with the activity across all the verticals, we're seeing an increase in deposits we haven't really seen this time of year before. You know, taking away the stimulus checks and all that stuff that happened during the pandemic.
Speaker Change: Yeah, well, especially with credit sponsorship, yes.
Speaker Change: No doubt. If we're at $300 to $500 million in that alone.
Damian Kozlowski: The game changer here is one thing that maybe we didn't emphasize enough: is the deposits. So, with the activity across all the verticals, we're seeing an increase in deposits. We haven't really seen this time of year before, you know, taking away the stimulus checks and all that stuff that happened during the pandemic. Why that's so important is because we can facilitate a lower funding cost over time because we can take the pot, the higher cost deposits and higher cost borrowings off the balance sheet. And so with interest rates dropping, you know, it's potential that we could drop our funding of the bank even more by having more demand, not interfering deposits on balance sheet.
Speaker Change: You're going to see that increase in balances. The game changer here is one thing that maybe we didn't emphasize enough is the deposits.
Speaker Change: So, with the activity across all the verticals, we're seeing an increase in deposits we haven't really seen this time of year before. You know, taking away the stimulus checks and all that stuff that happened during the pandemic. Why that's so important is because
Damian M. Kozlowski: Why that's so important is because we can facilitate a lower funding cost over time because we can take the higher cost deposits and higher cost borrowings off the balance. And so with interest rates dropping, there is the potential that we could drop our funding of the bank even more by having more demand, not interest-bearing deposits on balance sheets. So that is very supportive of increases in profitability. And the Fintech, you know, the incoming on the Fintech side is dramatic. So, the addition of large programs, additional large programs, is expected over the next 12 months. All that together supports the guidance but also supports continued significant profitability increases over the next two years.
Speaker Change: We can facilitate a lower funding cost over time because we can take the higher cost deposits and higher cost borrowings off the balance sheet.
Speaker Change: And so with interest rates dropping, you know, it's potential that we could drop our funding of the bank even more by having more demand, not interest bearing deposits on balance sheets. So that is very supportive of the increases in profitability.
Damian Kozlowski: So that is very supportive of the increases in profitability. So, and in the syntax, you know, the incoming on the syntax side is dramatic. So the addition of large programs, additional large programs is expected over the next 12 months. So all that combined supports the guidance, but also supports continued significant profitability increases over the next two years. Okay, great.
Speaker Change: So, and the syntax, you know, the incoming on the syntax side is dramatic.
Speaker Change: So the addition of large programs, additional large programs, is expected over the next 12 months. So all that combined supports the guidance but also supports continued significant profitability increases over the next two years.
Frank Joseph Schiraldi: Okay, great. And then as we think about just near-term trends, you know, you talked about the deposits being a bit higher than you would have thought based on previous seasonality, I guess, end of period. And as I think about, as we think about NII for the third quarter, kind of a good run rate, is it better to use kind of end-of-period balances or average for the quarter? Any guardrails you guys can put around NII expectations, just because there are so many different things going on in terms of drivers? Well, I'd go end of period, and I'd...
Paul Frenkiel: And then, as we think about just near-term trends, you know, you're talking about the deposits being a bit higher than you would have thought based on previous seasonality, I guess, end of period. And as I think about, as we think about NII for the third quarter, kind of a good run rate, is it better to use kind of end-of-period balances or average balances for the court? Or any guard wheel, you guys can put it around kind of NII expectations, just because there's so many different things going on in terms of drivers. Well, I'd go end of period, and our DIM is going to be around 5%, regardless of the loan type.
Speaker Change: Okay, great. And then as we think about just near-term trends, you know, you're talking about the deposits...
Speaker Change: being a bit higher than you would have thought based on previous seasonality, I guess, and the period.
Speaker Change: And as I think about, as we think about NII for the third quarter, kind of a good run rate.
Speaker Change: Is it better to use end-of-period balances or average balances for the court? Any guardrails you guys can put around NII expectations, just because there's so many different things going on in terms of drivers.
Paul Frenkiel: Well, I'd go end of period, and our NIM is going to be around 5%, regardless of the loan type. So it might even, it could be around, it could actually be, we have a million dollars in there. We have that million dollars that we had to back out after tax because of that one securitization that was a long time ago. And we do have plenty of coverage on that security, so we're not expecting a loss on that either.
Speaker Change: Well, I'd go end of period and our NIM is going to be around 5%.
Damian Kozlowski: So it might even, it could be around, it could actually, we had a million, we had that million dollars in there that we had to back out after tax. Because of that one securitization, that was a long time ago, and we do have plenty of coverage on that security, so we're not expecting a loss on that either. But the, so 5-ish, it might take a little bit higher, depending on the class, but the issue with the loans that we're doing in certain cases on the FinTech side, some of that will be in fees. Because of the way these, some of these loans work instead of in NIM.
Speaker Change: regardless of the loan type. So it might even, it could be around, it could actually, we had a million, we had that million dollars in there that we had to back out after tax.
Speaker Change: Because of that one securitization that was a long time ago. And we do have plenty of coverage on that security, so we're not expecting a loss on that either.
Paul Frenkiel: So, 5-ish, it might kick a little bit higher depending on the class, but the issue with the loans that we're doing in certain cases on the fintech side, some of that will be in fees. Andres Viroslav, Paul Frenkiel, David Feaster, Michael Perito, Timothy Switzer, Andres Viroslav, because we don't know exactly who's going to grow and in what cases. But in our modeling, that's kind of where we are.
Speaker Change: So five five ish it might take a little bit higher depending on the class, but the the the and the issue with the The loans that we're doing in certain cases on the FinTech side some of that will be in fees
Speaker Change: because of the way some of these loans work instead of in NIM. So you'll see some of the fees growing and some of that will actually be NIM related technically. So, but the 5% is I think a good...
Damian Kozlowski: So you'll see some of the fees growing, and some of that will actually be NIM related, technically. So, but the 5% is, I think, a good, because we don't know exactly who's going to grow in, in what cases, but in our modeling, that's kind of where it is. Great. Okay. Thanks.
Speaker Change: because we don't know exactly who's going to grow and in what cases but in our modeling that's kind of where it is.
Operator: Thank you.
Speaker Change: Great, okay, thanks.
Damian Kozlowski: After this time, I would like to turn the call back to Damien Kuzlowski for any additional or closing remarks. Thank you, everyone. We appreciate you attending our conference call.
Operator: At this time, I would like to turn the call back to Damian Kozlowski for any additional or closing remarks.
Speaker Change: Thank you.
Speaker Change: At this time, I would like to turn the call back to Damian Kozlowski for any additional or closing remarks.
Damian M. Kozlowski: Thank you, everyone. We appreciate you attending our conference call. Operator, you may disconnect the line.
Operator: Operator, you may disconnect the lines. Thank you.
Damian M. Kozlowski: Thank you everyone. We appreciate you attending our conference call. Operator, you may disconnect the lines.
Operator: Thank you. This does conclude the Bancorp Inc. Q2 2024 Earnings Conference Call. You may disconnect your line at this time, and have a wonderful day.
This does conclude the Bank Corp EQ2 2024 earnings conference call. You may disconnect your line at this time and have a wonderful day.
Speaker Change: Thank you. This does conclude the Bancorp Inc Q2 2024 earnings conference call. You may disconnect your line at this time and have a wonderful day.
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Speaker Change: [inaudible] Sonata for trumpet and bugle