Q4 2024 The Bancorp Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Bancorp, Inc, Q4, and fiscal 2024 earnings Conference call. At this time all lines are in a listen only mode.
The presentation, we will conduct a question and answer session.
Theirra Small: At any time during this call you require immediate assistance. Please press star zero, where the operator. This call is being recorded on Friday January 31st 2025, I would now like to introduce your speaker for today address their small. Please go ahead.
Speaker Change: Thank you operator, good morning, and thank you for joining us today for the Bancorp's fourth quarter and fiscal 2024 financial results conference call on the call with me today are Damian Kozlowski, Chief Executive Officer, and Paul Frankel, Our Chief Financial Officer. This mornings call is being webcast on our website at Www Dot The Bank Corp, Dotcom there'll be a replay of the call.
Speaker Change: Available via webcast on our website beginning at approximately 12 P M eastern time today.
Speaker Change: The island for the replay is 1888.
Speaker Change: 60, Euro 6264, with a pass code of 18739.
Speaker Change: I turn the call over to Damian I would like to remind everyone that our comments and responses to questions reflects management's view as of today January 31, 2025 yesterday, we issued our fourth quarter earnings release, an updated investor presentation. Both are available on our Investor Relations website.
Speaker Change: We will make certain forward looking statements on this call. These statements are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions when we mentioned today.
Speaker Change: Factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission. In addition, we'll be referring to certain non-GAAP financial measures. During this call additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are in the earnings release and the industrial presentation. Please note that the Bancorp undertakes no obligation to publicly release results of any revisions.
Speaker Change: The 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 the Bancorp's Chief Executive Officer, Damian Kozlowski Damian.
Speaker Change: Thank you Andres good morning, everyone. The Bancorp earned $1 15, a share for the fourth quarter and 429 for the full year 2020 for the year over year EPS increase for the quarter was 41% and 23% for the full year EPS was driven by higher total revenue year over year of 8% excluding.
Speaker Change: $19 $6 million of consumer Fintech noninterest income correlated with related provision for credit losses. The increase in EPS was led by the growth of total fintech fees, 16% year over year growth in your own deposits and a significant reduction of shares year over year of approximately 10% due to an enhanced.
Speaker Change: 24 buyback of 250 million pinch.
Speaker Change: Fintech solutions continues to build by volumes and is the major driver of profitability growth from both fees and lower costs stable deposits for full year 'twenty four G. D V grew 15% over the prior year. However, the fourth quarter saw a significant acceleration with GDP growing 19 per.
Speaker Change: And year over year total fee growth was 18% for the year from Austin, Tex activities, which ballooned to 29% in the fourth quarter year over year, driven by credit sponsorship and 78% growth in ACTH card and other payment processing fees, which includes rapid funds transfers the fintech solutions.
Speaker Change: Group continues to add new partnerships and expand existing programs. For example, credit sponsorship continues to grow significantly and we anticipate balances.
Speaker Change: To approach one.
Speaker Change: 1 billion by the end of 'twenty five with the addition of new partnerships.
Speaker Change: Fourth quarter credit sponsorship fees grew 91% quarter over quarter with quarter end loan balances growing from 280 million to 454 million or 62%.
Speaker Change: You're in sub standard loans in our rebel portfolio declined 14% compared to September 30, 24, due to a loan portfolio sale and the percentage further declined on January 2nd with a loan repayment. We expect this trend to continue with little to no loss, we continue to maintain significant coverage on these loans with low.
Speaker Change: <unk> and expect further progress by the end of the first quarter.
Speaker Change: Lastly, led by the broad based and increasing growth in our Fintech solutions group, we are affirming twenty-five guidance of $5 25, a share the guidance does not include $150 million of share buybacks for 25, or 37 5 million per quarter buybacks had been reduced $100 million in <unk>.
Speaker Change: 25 from 24 to facilitate the repayment of $96 million of senior secured debt depending.
Speaker Change: Depending on prevailing rates, we may reissue 100 million in more senior secured debt those proceeds would likely be used for further buybacks of shares I now turn the call over to my colleague and CFO Paul Franco.
Speaker Change: Thank you Damian based upon the applicable accounting guidance lending agreements related to consumer Fintech loans had certain provisions accounted for as freestanding credit enhancements, which resulted in the company recording a $19 6 million provision for credit losses, and $19 $6 million and noninterest in.
Paul Franco: Income, resulting in no impact to net income.
Paul Franco: In the fourth quarter the company recognized a $1 million recovery from the trust preferred security, which was written off in the fourth quarter of 2023 one.
Paul Franco: One of the primary strategies of the company is to create a meaningful footprint and credit sponsorship lending after having begun to generate balances in the third quarter of 2024, we're proceeding prudently and our Fintech credit strategies and currently are generating balances with lower potential loss exposure we believe.
Paul Franco: We will be able to originate loans with higher yields <unk> fees in the future.
Paul Franco: The majority of the increase in year end loan balances compared to September 32024 was comprised of consumer Fintech loans.
Paul Franco: Fourth quarter net interest margin of $4, five 5% compared to $4 seven 8% for third quarter of 2024 and reflected $1 $3 million of prior period interest reversals on rebel loans included in an $82 million year end rebel loan sale.
Average Fintech solution group deposits for the quarter increased 16% to $6 99 billion from 6 billion in fourth quarter 2023.
Paul Franco: Excluding the consumer Fintech accounting offsets noted previously the provision for credit losses on loans was $2 million in Q4, 2024 compared to $4 1 million in Q4 2023 Q.
Paul Franco: Q4, 2023 reflected a $1 million reflected $1 million, resulting from growth in loan principle between the fourth and the third and fourth quarters of 2023 against which sees a loss and qualitative percentages are applied.
Paul Franco: An additional $1 million resulted from increasing with seasonal economic factor on our great real estate bridge loans the balance of the provision in 2004th quarter of 2023, primarily reflected the impact of lease leasing related charges, approximately 900000 of which were in a long long haul.
Paul Franco: Local trucking.
Paul Franco: The largest component of the 2020 for fourth quarter provision also reflected the impact of the trucking and related categories total principal exposure in those trucking categories was.
Paul Franco: It was approximately $32 million at December 31, 2024.
Paul Franco: While the macroeconomic environment has challenged the multifamily bridge space the stability of the Bancorp's rehabilitation bridge loan portfolio is evidenced by the estimated values of the underlying collateral the $2 1 billion dollar apartment bridge lending portfolio has a weighted average.
Paul Franco: Nation date as is LTV of 70% based on 33rd party appraisals or.
Paul Franco: 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 from losses significantly outstanding modified rebel loans have respective as is and as stabilized weighted.
Paul Franco: Average ltvs of 73% and 63%.
Paul Franco: Excluding the consumer Fintech accounting offsets noted previously noninterest income for Q4, 2024 was $34 $7 million, which was 28% higher than Q4, 2023 prepaid debit card and other payment fees increased 16%.
Paul Franco: Accounting for the majority of the increase.
Paul Franco: Those increases reflected both higher rapid funds transfer income and higher prepaid and debit program sponsorship income driven by both new client relationships achieving scale.
Paul Franco: And the continued organic growth of long standing client relationships.
Paul Franco: The increase in noninterest income also reflected consumer fintech fees of $3 million, reflecting the company's third quarter 2020 for entry into credit sponsorship. As previously noted we believe we will be able to originate loans with higher yields and <unk> fees in the future.
Paul Franco: Noninterest expense for Q4 2024, it was $51 8 million, which was 14% higher than Q4 2023. The increase included a 22% increase in salaries and benefits, which reflected higher staffing costs related to payments related to financial crime.
Paul Franco: And incentive compensation expense, including stock compensation expense.
Paul Franco: In summary, the bancorp's balance sheet is the 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.
Real estate bridge lending is comprised of workhouse housing workforce housing, which we consider to be working class a apartments at more affordable rental rates in selected states. We believe that our underwriting requirements provide significant protection against loss is supported by LTV ratios based on.
Paul Franco: Third party appraisals further as black and I block loans, respectively, collateralized by marketable securities and the cash value of life insurance.
Paul Franco: Loans are either SBA seven loans that come with significant government guarantees or fiber for loans.
Paul Franco: That are made at 50% to 60% Ltvs.
Paul Franco: Additional details regarding our loan portfolio are included in the related tables in our press release as are the earnings contributions of our payments businesses.
Paul Franco: <unk> further enhances our risk profile the risk profile inherent in the company's loan portfolios.
Paul Franco: Payments funding sources and earnings levels may present opportunities to further increase shareholder value, while still prudently maintaining capital levels such opportunities include stock repurchases, which are planned in 2025, I will now turn the call back to Damien.
Damien: Thank you Paul.
Damien: Operator, please open the line for questions.
Speaker Change: Thank you and ladies and gentlemen, we will now begin the question and answer session to ask a question you May Press Star followed by then everyone on your telephone keypad.
Speaker Change: Using a speakerphone please pick up your handset before pressing any key debate about your question. Please press star two.
Speaker Change: First question comes from the line of Frank Schiraldi with Piper Sandler. Please go ahead.
Frank Schiraldi: Good morning.
Speaker Change: Just on the on the acceleration in GDP Damian in the quarter I'm curious if you can.
Speaker Change: What youre seeing so far in our early twenties 25 thoughts on 'twenty to 'twenty five in terms of year over year growth in GDP and then how do we think about pick.
Speaker Change: Pick up in terms of the fee income piece I know, obviously the consumer credit.
Speaker Change: Credit stuff is driving some decent fee income growth, but if I just think about if we just think about the deposit related.
Speaker Change: Kind of fees, what is the pick up for a.
Speaker Change: Given 15 or 20% GDP growth.
Speaker Change: Okay. So.
Speaker Change: The first part of it the GDP has continued to be accelerated so in January.
Speaker Change: Still seeing 19, 20% GDP growth so that is.
Speaker Change: I was kind of a wire last year I said, we would be above trend in GDP and we just we just were a little too late on implementations to get a real kick at the end, but you saw it in the fourth quarter. So GDP is very strong.
Speaker Change: That's number one number two is the.
Speaker Change: The fee what's happening is that we've worked very hard to expand the product set as you know.
Speaker Change: Rapid funds.
Speaker Change: We were an early adaptor adopter and now with credit sponsorship.
Speaker Change: We're expanding the programs with our primary client, but then with new clients. So.
Speaker Change: Yeah, its kind of building a layer cake now so you're getting kind of fees on top of fees from our primary relationship.
Speaker Change: So.
Speaker Change: We were in the fourth quarter, if you look over the year over year a lot of that is run rate business and then youre going to have the additional balances the balances on the credit sponsorship could be over a $1 billion for this year. So.
Speaker Change: So youre going to get a fee growth and at least in the high Twenty's.
Speaker Change: Or if you look at all the fees right. So if you look at the age the base fees that we have which are less determinative with GDP because the relationships have expanded so much and have additional fee sources and they are kind of all.
Speaker Change: Additive to each other so if you look at the whole fee structure, it's going to be at least in the high Twenty's. If you include the credit sponsorship piece and if you take that out youre still with at.
Speaker Change: At our GDP growth now you are in the high teens, if you have the ECH and related fees and the base card fees. So it's very strong historically and we haven't seen this type of growth in GDP and.
Speaker Change: Well, obviously ever and fee growth, but we haven't seen this type of volume growth since the pandemic with a massive government stimulus. So that was one time items now it's based on diversity of product and also on the new larger programs that we that we put out our platform.
Speaker Change: Sure.
Speaker Change: Okay, Alright, great. That's that's great color and then.
Speaker Change: Just.
Speaker Change: On noninterest income on the NIM, obviously, you had the interest reversal in the quarter.
Speaker Change: But then you also have these these are significantly higher consumer balances that seem to be earning more on the fee side. Then maybe in terms of yield. So I'm just curious if you could talk through.
Speaker Change: Is that kind of the name of the game can we can we continue to see maybe some margin compression and more pickup on fee income or what are your thoughts.
Speaker Change: On margin in 2025, so it near term.
Speaker Change: As you can see we have a very strong growth in deposits with ads, obviously to our cash balances.
Speaker Change: However, whats going to happen in the near term, it's depending on implementation of of which programs.
Speaker Change: Lending programs and credit sponsorship, primarily because what happens is some of these products are only fee based like for example, the my pay products right. We do have additional liquidity because they are funded with a demand deposit but the.
Speaker Change: The result for US is all fee based even though you kind of an accounting basis. Its a fee Howard that's our payment for that product in the near term there might be some NIM erosion, even though we're getting more profitable however, that'll turn around substantially as new.
Speaker Change: Programs that are interest based and not primarily feedback base get implemented.
Speaker Change: And those are on our platform now with.
Speaker Change: With our client so youll see Youll see you might see a depression because it's in it's in the sponsorship fee line, but then it will reverse in the fees will slow down and then the net than non interest the interest income will increase.
Speaker Change: Okay.
Speaker Change: But the result, but the result is basically the same it's just in the wrong category right Youre seeing youre seeing a fee that is really the payment would be traditionally its not name but.
Speaker Change: We're calculating the economic benefit of having the program.
Speaker Change: Sure understood and then and then just lastly, I noticed in the footnote in the release you mentioned you had two smaller.
Speaker Change: Non accruals after.
Speaker Change: The quarter end.
Speaker Change: I think under just under $10 million I believe that's in the rebel book can you just.
Speaker Change: Talk about those because I didnt see any increase in delinquency in the quarter and also just your confidence in criticized classified.
Speaker Change: It sounds like you you talked about it getting near peak or maybe peaking and obviously you had the loan sales and AR balances were down but just wondering your confidence going forward and those have reaching peak level and do you need or expect to continue to have additional loan sales to kind of offset.
Speaker Change: What otherwise would be inflows into those categories. So we think we're over the peak now right. So there might be a couple of modifications a couple of sub standard loans, but we can see a significant decrease over the next quarter potentially or two quarters. So we have the odd resale, but we have other there may.
Speaker Change: Additional loan sales and we know where we are with.
Speaker Change: We're closely tracking all the.
Speaker Change: All of those loans and Additionally, remember we had a third party review of the portfolio. So we're very confident now I think that we're on the other side of the peak and they should we should show real good progress this quarter and going into next quarter.
Speaker Change: Yeah and on the $10 million.
Speaker Change: It's.
Speaker Change: Developing situation, where we think we have an issue.
Speaker Change: With that amount of loans and as Damian said, we have.
Speaker Change: We all believe that we've reached the peak in end use we have the abris sale coming up and we have other things and other loan sales are in fact possible.
Speaker Change: So it's not going to be a perfect.
Speaker Change: Reduce reduce reduce you may have.
Speaker Change: A small loan like like the $10 million that might become an issue but again.
Speaker Change: Even with that as with all of the modified loans, we have very strong protection against loss and the Ltvs and we don't expect.
Speaker Change: Number one we don't expect net increases in the sub standards and in the.
Speaker Change: And in those types of loans with issues Theyre going down it should consistently go down we think theyre going to go down in the first quarter, but in fairness to the presentation. We do disclose we did disclose that.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change:
Speaker Change: Okay. So so just on those two loans.
Speaker Change: At this point I guess Theres no.
Speaker Change: Additional color there in non accruals, so I guess, we're assume.
Speaker Change: Uh huh.
Speaker Change: Well collateralized, but.
Speaker Change: Okay.
Speaker Change: We really can't it's a developing thing will fully disclose it when we can and we think there will be no loss.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you and your next question comes from the line of steam Spitzer with Keybanc. Please go ahead.
Speaker Change: Hey, good morning, Thank you for taking my questions.
Speaker Change: Turning to <unk>.
Speaker Change: My first question is on.
Speaker Change: Some of the disclosures around the loan agreements with you.
Speaker Change: The consumer Fintech loans, where you are I guess being reimbursed for.
Speaker Change: The credit provision can you give us some I know you can't go into specific customers, but can you go into some details broadly.
Speaker Change: About.
How those contracts are written and like do you get the collateral if they're not able to cover the losses and do you provide do they provide.
Speaker Change: Cash for the losses upfront before they occur or as as they occur.
Speaker Change: Any details you can provide on that would be really helpful. Yes. So we do we have an offset so there.
Speaker Change: It's really backed up by the client on these types of loans that were currently doing so this.
Speaker Change: The way it works you got to remember when we when we're working with our clients. These large clients were holding.
Speaker Change: The entire profitability of the bank at US we get everything first so its interchange whatever rate. We also they also post collateral for these loans on additional additionally, so we have the offset far outweighs the.
Speaker Change: That would be in the <unk> category would be the interchange for these large programs. That's first place we have the backstop plus we have.
Speaker Change: They post collateral so it's very very well.
Speaker Change: It's nothing zero, but it's as close to zero.
Speaker Change: That you can on the on the on the riskiness of the loans.
Speaker Change: And as far as your other question on the.
Speaker Change: Contract and how the accounting related they're really technical accounting guidance that.
Speaker Change: That we're looking at those agreements and.
Speaker Change: We obviously would rather not have.
Speaker Change: Have like somewhat of a distortion by by showing a big number and a provision in a big number that's equal to that in the noninterest income. So we're looking at those technical requirements and we don't anticipate that it'll be an issue going forward. If we can make those minor tweaks to the agreed.
Speaker Change: <unk>.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: And just to be clear so the collateral you have on your loans you have received more than the $19 6 million. You received that's just when it gets recognized through the income statement when exactly do you receive the collateral and like is.
Speaker Change: Is it equivalent to like what you put up on the reserve side or is a little bit higher.
Speaker Change: Like you could really get into the technicalities like youre, suggesting with key accounts and when we get the money the bottomline as Damian said in these in these cases the bank is fully protected.
Speaker Change: To the extent that it can be like the dollars are really there so theres really no no.
Significant.
Speaker Change: Issues, Yes, remember, we're holding all the interchange prior.
Speaker Change: Very small part of it so we kind of don't let out to everybody else. That's the first part of it that is a huge number right. This is very small compared to that however, we do also have collateral, but it's it's a one to one offset when when it goes.
Speaker Change: Over a certain amount of time.
Speaker Change: I'm not going to disclose but it's a couple of we have an exact date when that day happens then that is funded and that offset happens. So if it goes.
Speaker Change: A certain amount of time.
Speaker Change: Our loan has been paid back remember these are very quick loans right. So it doesn't pay back that the offset occurs.
Speaker Change: Okay, Yes, yes, no that helps a lot and so is it fair to say you guys give up the interest income, but still receive all the interchange for this arrangement not necessarily like it varies on different credit products, we price each credit product in each relationship differently.
Speaker Change: So you really have to.
Speaker Change: And at this point with the mix, we're not certain really ultimately what the mix is going to be but as I said in my presentation. Ultimately we expect will.
Speaker Change: Do other programs with higher yields and <unk>.
Speaker Change: Fee income, yes, so we have the.
Speaker Change: We implemented the program was kind of secured we have a credit builder program, which is credit card. We have spot me, which is a kind of AR overdue fully secured overdrafts.
Speaker Change: That.
Speaker Change: And my pay is kind of a free loan. If you remember this is the highest growing one so far is a free loan to the client.
Speaker Change: The only reason that.
Speaker Change: The client pays anything for that loan is because they want it.
Speaker Change: Immediately and Thats the source of fees for our partner and for Us.
Speaker Change: And with that comes a.
Speaker Change: Deposit at zero.
Speaker Change: So.
Speaker Change: The interest income that would have been charged as actually being generated in a fee for rapid advance rates.
Speaker Change: So, but the way we implemented these programs because we're trying to make sure that we build it in the right way is to start with those type of programs were the primary client like we did but then add the interest more complicated products and then expand it to other programs, which is we're in the process.
Speaker Change: So youll see those balances like you saw in the fourth quarter rapidly grow and then Youll see rapid product diversification and so some will be fee based but in the future. It will be very diversified, but there'll be a lot more interest income.
Speaker Change: At much higher rates.
Speaker Change: Okay, Okay got it.
Speaker Change: And in the future as you continue to diversify your products do you plan to.
Speaker Change: The loan agreements include you're being reimbursed for the credit losses or are you going to.
Speaker Change: Do any kind of arrangement that makes economic sense for you guys.
Speaker Change: Well right. So if theyre kind of renting our balance sheet like unless in that particular program it'll be fee based and it probably won't have the.
Speaker Change: Interest component Dolby programs like that but as into the future there'll be programs, where say theyre all they could be much higher interest rates right.
Speaker Change: And we would hold that many times there'll be securitized within three years or 30 days, so that'll be very fee based but with a lot of velocity right. So it will be small balances, but a lot of loans will be going through the balance sheet, which will generate both spread but fee income, but then we will.
Speaker Change: Also hold a very diversified set in the future, but maybe 10 programs right very small strips there'll be small balances, but they could add up to $1 billion, but it would be very diversified we'd get a lot of interest income in that case, they would not be backed up by the partner.
Speaker Change: But then those would be extremely profitable because you get much much higher it's a small strip theyre very quick terminating loans, we hold a small strip and they are very diversified.
Speaker Change: <unk> would be that's where we want to go at the end of the day to have a portfolio of multiple programs very small very small because if you think about it. If you are a $1 billion of those over 10 programs that is immensely profitable because the velocity on those loans are so quick.
Speaker Change: You get not only a high interest rates, but you can also get high fees and then the majority of it is securitized outside and that generates a fee. Additionally, so those loans are incredibly profitable and it makes your balance sheet much larger than it is for example.
Speaker Change: On the $4 54.
Speaker Change: So look at that $4 54, even into our current.
Speaker Change: Programs that we have that $4 54 really represented about $2 billion of loans that actually went through the system and were repaid.
Speaker Change: In the $19 million being part of the.
Speaker Change: Of the loss of people, who didn't pay it back but that is far outweighed by the fees that we generate for.
Speaker Change: People wanting the money early.
Speaker Change: 19.
Speaker Change: That hasnt been disclosed you see are part of it you don't see our partners part of it but.
Speaker Change: As far as that loss is far outweighed by the fees generated.
Speaker Change: Well, yes, it seems like.
Speaker Change: Good products that get some strong risk adjusted returns here, if I can switch topics just a little bit here.
Speaker Change:
Speaker Change: So really strong deposit growth an influx of cash balances was that related at all to the collateral you receive related to these loans and then sell.
Speaker Change: Do you plan to deploy that or move to balance sheet lower.
Speaker Change: Looking for some color there. Thank you.
Speaker Change: No that's not really that's not really the driver. So the volume is the driver on that one the volume is the driver there is because the.
Speaker Change: The credit the secured credit card, obviously is secured with deposits you do have some of that in the growth.
Speaker Change: The GDP number is really the <unk>.
Speaker Change: The main driver is the main driver and we also have you got to remember we have also have other temporary flow businesses like BTB payments and stuff that are growing very quickly that money goes through the bank and that bank has here temporarily so it's really a volume drove that the that the deposit number if you look at our GDP growth was 15.
Speaker Change: And the deposit growth was 16 that tells you is that right there.
Speaker Change: Extra 1% is what.
Speaker Change: Probably the credit builder part of it.
Speaker Change: Got you Okay I appreciate all the color guys. Thank you.
Julianna: And your next question comes from the line of Julianna <unk> with Raymond James. Please go ahead.
Julianna: Good morning.
Speaker Change: Hey, how are you good morning.
Julianna: Doing well.
I was hoping you can discuss your.
Julianna: Your credit enhanced program a bit more.
Julianna: Any internal concentration limits on the size of the program and should we think about the bulk of the near term ramp coming from new partners or from existing partners who've gone through the program.
Julianna: Yes, so we do yes, we.
Julianna: We do we haven't we have a conservative depending.
Julianna: Depending on the programs we have we go through a process and we basically set a limit.
Julianna: And I think they would be there'll be a use of our balance sheet and it depends on the types of products, but when we do this we will set a limit even though this is kind of fully secured at this time, we have set a limit on the balance sheet that we think is conservative and we go through our risk management process.
Julianna: So and the ramp up as well.
Julianna: We really do see clear vision to $1 billion plus this year.
Most of that will come from our current partner, but it will.
Julianna: We'll be ramping up other programs.
Julianna: And so it's very possible.
Julianna: And if you recall apex 2030, we had a $3 billion kind of target for 2030, it's very possible that $3 billion will be reached at the end of 'twenty six.
Julianna: So our perspective has changed on.
The people, who want to work with us and build out these programs, but youll see the like like we said before youll see that lower risk business is kind of the first adoption and then youll see the diversification.
Julianna: Securitization and you also see a higher rate loans, and a very diversified manner being put on the balance sheet.
Julianna: If you think about it just conceptually if we had $3 billion in a couple of years, probably up to $2 billion would be this very very low risk business and then you'd have a diversified strips of business.
Julianna: For for maybe $1 billion on the balance sheet and that probably wouldn't grow substantially over the next couple of years, but we would be working with more and more partners and there'll probably be more securitization of those assets.
Speaker Change: Got it I appreciate it that was very helpful. And then just.
Speaker Change: Maybe you attack the collateral question for your credit enhanced program a different way.
Speaker Change: Have you reached that $1 billion balance.
Speaker Change: At some point in the year.
Speaker Change: What would be the range of.
Speaker Change: Maybe.
Speaker Change: Casey of deposits that would come with that that you would hold.
Speaker Change: It's going to vary but remember it's rolling over right. So.
Speaker Change: So to the extent that there are losses, where we have credit enhancements and in that way. So the money gets.
Speaker Change: EBIT.
Speaker Change: Bad loan.
Speaker Change: Non paid loans are sold or otherwise repaid its a constant flow. So that balance is never really going to grow that significantly.
Speaker Change: Got it.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: And then just kind of switching gears here can you discuss any themes or trends that have emerged from recent contract negotiations with your partners.
Speaker Change: It's a very it's the same thing for the last couple of years.
Speaker Change: We're going to add.
Speaker Change: Three four partners a year.
Speaker Change: The their expanded needs so.
Speaker Change: Our conversations are not only on the expanding to the credit side.
Speaker Change: Or maybe on the debit side of your credit provider.
Speaker Change: But also things like we're building out in an embedded finance so the conversations are more broad.
Speaker Change: The disruption in the industry has made the IND.
Speaker Change: Industry for us at least far less price sensitive right. So people, especially the large complex players are looking for long term.
Speaker Change: If they've decided and I think most of them have not to be a financial institution per se.
Speaker Change: They are looking for.
Speaker Change: A.
Speaker Change: A five year minimum 10 year 20 year solution somebody that they can work with to provide access to the.
Speaker Change: Banking system, but then also grow with them and be an enabler and at the end of the day, we're not the innovator with the enabler. So do we have the wisdom.
Speaker Change: From past experience, but also the relationships in the industry of which we obviously do to solve problems for them because they want to innovate it's clear that all these fin techs now want to have a very diversified portfolio and it's not even debit credit embedded finance it might even be things like securities trading.
Speaker Change: Et cetera, So that's where this industry is going and so we're developing our capabilities along with it right and that demand is definitely there we don't.
Speaker Change: I think we're going to have like we saw in the fourth quarter, we're going to have a dramatic twenty-five, especially if you just take our run rate and just multiply it by four youll see substantial growth, but what's most exciting isn't that for us. It's these new product development areas and it once again to layer cake. So we've got the base.
Speaker Change: Business growing double digits, and then you add on two products a rapid expansion of things like rapid funds and then you also have new product categories, which are all fee based and then have a totally connected to all the other fees that were generating that create sustainable GDP. So.
Speaker Change: They're more complex, they're much more product focused.
Speaker Change: Theres not a lot of pricing pressure at least now on us.
Speaker Change: But we are a fair price or two we're not we have such scale that we when we do these big contracts to have tears. So as we grow with our clients as they expand their product set on our base business they get there.
Speaker Change: Reach certain levels, we make more money and they make more money so everybody and if you recall, we're very small piece of the interchange story. So.
Speaker Change: Were the last person that we have all the money in the beginning but we don't keep a lot of it we give it every week.
Speaker Change: We gave it to the networks, we give it to our program managers, but because of our scale and sophistication, we can turn a V.
Speaker Change: Very little.
Speaker Change: A bit of <unk> and two.
Speaker Change: Because theres so much going through the bank.
Speaker Change: We can be very efficient for our partner, but we can make a lot of money, while we're doing that.
Speaker Change: No that was very thorough.
Speaker Change: And then last one for me here.
Speaker Change: What is the timing on the repayment of your sub debt that you called out.
Speaker Change: And then separately is there any reason buyback activity wouldn't snap back in 2026.
Speaker Change: Yes, so are there any other capital deployment priorities.
Speaker Change: Unless there is some inorganic thing that we did.
Speaker Change: And we don't expect to do anything big like that.
Speaker Change: We are.
Speaker Change: The case of the 100% repatriation of our net income.
Speaker Change: So.
Speaker Change: The senior secured debt, we never had any sub debt, we raised $100 million at low interest rates.
Speaker Change: Very low coupons when that was and we did $100 million kind of test it.
Speaker Change: It was way oversubscribed, and we had it for five years and now it's being repaid theres $96 million left of it we actually bought some of it in the open market.
Speaker Change: During the.
Speaker Change: The stress period, because we actually got it at a discount and so we bought our own debt back but so.
Speaker Change: We could substantially the only reason we would borrow.
Speaker Change: Probably as to the stock was and fairly valued in an extreme way. So we don't we expect just the payback the $96 million, we can do that out of cash flow and sustain our capital next year as we continue to grow net income buybacks will mirror net income because we have no other debt that's our only debt.
Speaker Change: There is no other use of it so we don't and we don't need any more capital because of Reg II and the durbin limit so unless they raised the durbin limit.
Speaker Change: Two and there is some discussion that that might happen, which would be enormously beneficial for us if that happened unless that happens we're going to stay.
Speaker Change: Giving all the money back, but increasing the velocity of our balance sheet dramatically through things like credit sponsorship through the sale of baby SBA guaranteed by selling rebel loans and packages and stuff like we have in the past and that will make our balance sheet appear to be a lot more productive than the average.
Speaker Change: Sheet, which would continue will allow us to continue.
Speaker Change: To generate substantial.
Speaker Change: <unk> now if you think about I'm going to give you one more thing and Thats. If you thought about the last few years, we had a filling up of the balance sheet and the NIM category right. So we're building what we consider low risk businesses and we were kind of building for the future of this product diversification and then we got that balance sheet opportunity, we havent bought a bond.
Speaker Change: And we locked in our and lowered our asset sensitivity last year in April when we bought almost $1 billion of bonds right. So interest rates go down it's not really going to affect us very much about a 1% per 100, but it's a very.
Speaker Change: But now it is the inflection point now not those businesses that are driving it.
Speaker Change: And the men.
Speaker Change: Businesses, the NIM businesses levering up and then it was locking it in.
Speaker Change: Went from variable to fixed now the whole story now.
Speaker Change: As credit sponsorship, it's fintech right. So now fee growth is going to take over.
Speaker Change: At least for next couple of years until we get a lot of these other programs that are much higher spreads in the consumer fintech world, but but it'll all be fintech, so youre going to get a reordering of how our balance sheet has grown.
Speaker Change: And then the big bump from the what we call project <unk>.
Speaker Change: Next was the balance sheet management during the pandemic and now it's the whole story as the Fintech story. The growth is there the fee growth is there even on the credit side, it's going to be mostly the credit sponsorship story.
Speaker Change: Questions.
Speaker Change: Alright, Thank you and there are no further questions at this time I would like to turn it back to our CEO Damian Kozlowski for closing remarks.
Speaker Change: Thank you everyone for joining us today.
Speaker Change: Operator, you may disconnect the call.
Speaker Change: Thank you presenters, ladies and gentlemen. This concludes today's conference call. Thank you all for participating you may now disconnect have a lovely day.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.