Q1 2025 The Bancorp Inc Earnings Call
Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the Bancorp Inc Q1 2025 earnings conference call. At this time, all lines are in listen only mode.
Speaker Change: Following the presentation, we will conduct a question-and-answer session. If at any time during this call, you require immediate assistance, please press star zero for the operator.
Speaker Change: This call is being recorded on Friday, April 25, 2025. I would now like to turn the conference over to Andres Viroslav, please go ahead sir.
Andres Viroslav: Thank you, operator. Good morning, and thank you for joining us today for the Bancorp's first quarter 2025 financial results conference call. On the call to me today are Damian Kozlowski, Chief Executive Officer, and Marty Egan, our Interim Chief Financial Officer.
Andres Viroslav: There will be a replay of the call available via webcasts on our website, beginning at approximately 12 p.m. Eastern time today.
Andres Viroslav: The dial-in for the replay is 1-888-660-6264 with passcode of 80395.
Speaker Change: Before 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, April 25th, 2025. Yesterday, we issued our first quarter earnings release and updated investor presentation, both are available on our investor relations website.
Speaker Change: We will make certain four lucky 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 of different materially from those expectations and assumptions we mentioned today.
Speaker Change: These factors and uncertainties are discussed in our reports and in filings with the Securities and Exchange Commission.
Speaker Change: In addition, we'll be referring to certain non-GAAP financial measures during this call. Additional details and reconciliations of gap to adjusted non-GAAP financial measures are in the earnings release and the investor presentation.
Speaker Change: Please note that 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.
Speaker Change: Now, I'd like to turn the call over to the Bancorp's Chief Executive Officer, Damian Kozlowski. Damian?
Speaker Change: That income increased 1% between these periods, while outstanding shares were reduced as a result of increased repurchases that occurred during 2024.
Speaker Change: Our Fintech Solutions Group continues to show significant momentum, with GDP increasing 18% year-over-year and total fees growing 26%.
Speaker Change: Credit sponsorship balances grew to 574 million, or 26% quarter to quarter, and we expect these bounces to grow to over a billion by year and 25.
Speaker Change: While Lone Bounces grew 17% year-over-year, net interest income was down 3%. Lone Bounces, excluding consumer fintech loans, grew 6%.
Speaker Change: That interesting come reflected in part the impact of lower rate environment in the latter part of 24 on our loan interesting come which was down 5%
Speaker Change: The impact of lower rates was mitigated by a purchase of 900 million of fixed rate bonds in April 2024 and excess deposit balances held in Fed funds. Those bond purchases and other fixed rate strategies have reduced our assets sensitivity significantly.
Speaker Change: We continue to focus on reducing substandard assets in our rebel portfolio, respective rebel, substandard, and special mention loans at March 31, 25.
Speaker Change: We're down 1% and 20% compared to the prior quarter end. We continue to believe that we are at the peak of substandard assets and believe we will show progress in reducing substandard assets over the next several quarters.
Speaker Change: Lastly, based on the momentum in our fintech solutions group and our reduced acid sensitivity, we are confirming guidance of 525 per diluted share for 25.
Speaker Change: EPS does not include the impact of 150 million of stock buybacks authorized for 2025. I now turn the call over to our interim CFO , Marty Egan.
Speaker Change: Thank you, Damian. As was the case in a prior quarter, provisions for credit losses for consumer fintech loans and freestanding credit enhancements were recorded in the financial statements in like amounts with no impact on that income. In the current quarter, the provision related to consumer fintech loans
Marty Egan: was 45.9 million, and the credit enhancement income was also 45.9 million.
Marty Egan: Net Interest Income was 3% lower than the first quarter of 2024, while the first quarter net interest margin of 4.07 compared to 4.55% for the fourth quarter of 2024.
As Damian noted,
Marty Egan: Current quarter net interest income was impacted by lower rate environment, which also impacted the net interest market, as low yields fill more than deposit rates.
Marty Egan: Additionally, he's on the majority of our growing consumer fintech loan balances are recorded as non-interesting cup.
Marty Egan: Average Fintechs solutions deposits for the quarter increase 26% to 7.81 billion from 6.18 billion in the first quarter of 2024. As noted in our file ends, we have the capacity to transfer deposits from certain of our relationships off our balance sheet, which we utilize for balance sheet management.
Marty Egan: Prepaid, debit card, ACH, and other payment fees increased 13% to 30.8 million over that period and consumer credit fintech fees of $3.6 million the count of four remaining increase in fintech fees.
Marty Egan: Non-interest expense for Q1 2025 was 53.3 million, which was 14% higher than Q1 2024. The increase included 11% increase in salaries and benefits.
Marty Egan: Additional details regarding our loan portfolios are included in related tables and our personally as our earnings contributions for our payments businesses. I'll not turn the call back to Damian. Thank you, Marty. Operated, could you open the line for questions?
All right, thank you.
[inaudible]
Marty Egan: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question? Please press the star followed by the number one on your touch-tone phone.
Marty Egan: You will hear a prompt that your hand has been raised.
Marty Egan: Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speaker phone, please lift the handset before pressing any keys.
One moment, please, for the first question.
Speaker Change: Your first question comes from Frank Schiraldi with Piper Sandler. Please go ahead.
Good morning.
Frank Schiraldi: Good morning, Frank. I wonder if you guys could just in terms of the margin, which is...
Frank Schiraldi: Obviously, it's been a little bit of a moving target here. You mentioned the...
Paul Frenkiel: Reduced assets sensitivity, and obviously the Fintech loans, you know, you get income elsewhere. But...
Speaker Change: In terms of, I just for modeling purposes, I was wondering if you could provide.
The Average Yield on the Fintech Lones.
Okay, so for the Fintech loans.
It's a fed funds, we get a zero.
Speaker Change: Interest rate deposit, and we get 5% on the loans. So that portion of it is translated into
So that's it!
Speaker Change: for modeling purposes. That does move if you've got, that is based on an enhancement of Fed funds at which stops at some point, so that might move a little bit.
Speaker Change: But that's not really very sensitive. Generally, it's a bracketed kind of.
Paul Frenkiel: P-Base, so that'll help maintain the NEM even if you went down to zero interest rates that were not, you know, it's still be significantly above that funds.
On the...
Speaker Change: And the other question, what was the other question? The asset sensitivity, you know, how much of, oh, okay. Yeah, so that moves around based on both the liabilities and the assets, right? So when we purchased, we got it down to almost, you know, a neutral.
depending on...
Speaker Change: You know, it moves around temporarily depending on our modeling, but we reduced it a lot at one point it was 8% and I think in the last
quarter, it would close to 1% .
Right?
Okay.
Speaker Change: And sorry, just on the fintech stuff, did you say the yield is 5% on that? Is a lot of that flowing through feeds of the post-NII?
Yes, currently it is, yes.
Speaker Change: And but that it's the average couple things. It's the average balance.
Speaker Change: There's payoffs, you see an average balance is really the thing they use, not the end of period balance, and it goes through cycles. So there's a lot of velocity on these loans, so you get a lot of variability and balances over the quarter.
Speaker Change: So, if you use the 3.6, and you look at the average balance, it won't.
Speaker Change: Be exact, but it should be fairly close [inaudible]
Speaker Change: to that 5%. So you're really not getting any pickup through. You're getting these bounties on the ...
Speaker Change: on the balance sheet and in the average balance sheet, but you're not getting any yield running through NII for these.
Speaker Change: Yeah, what we get, yeah, we get loan balances, but we don't get any right. Yeah, we have we have one small program that's growing so you will see it.
Speaker Change: I think there's a little bit of interest on the current income statement and that's there's four different programs remember and there's something called Inc To The Loan with you now when we roll out these programs our partner is kind of gated they go in stages so that one is growing now.
Speaker Change: So that one was approximately 25 million at the end of last quarter so that one will be growing and that won't show up in fees that will enhance the nib.
Speaker Change: Alright, but overall, as these things grow, as you go from 500 million to a billion, your names are just going to fall because the nominators are higher and most of us are coming for two feet.
Speaker Change: Correct. And then just a couple of quick ones on the credit.
Speaker Change: Or just in terms of the rebel migration, you continue to grow that book. How successful are you guys? I mean, I would imagine some stuff is starting to move off the balance sheet is because stabilized and moving into permanent financing. Do you have any numbers you can share on those outflows in the first quarter?
Speaker Change: Do you know what the we don't we haven't disclosed that we don't have that in our disclosures and we'll think about putting that in.
Speaker Change: But we haven't disclosed that in the earnings release, so we'll have to look at that.
Okay, I guess just turn over to say the book.
Speaker Change: The book has been fairly stable. The deal market isn't great right now, so we're being very selective. We put on enhanced underwriting because of the tariff, so we have greater reserves on the loans. We have questionnaires to different borrowers like in things in SBA. So we're going through based on the current market environment. We're being very careful. Spreads were very narrow and they widened.
Speaker Change: So, you know, but there's still still getting done, but we're at it would enhanced underwriting and we're putting additional reserves and things like the rebel portfolio to make sure that there's not any disruption and that there's plenty of funds available to rehab apartments.
Speaker Change: Okay. Okay. I'll let someone ask that question. I'll be cute. Thanks.
Thank you.
Thank you.
Speaker Change: The next question comes from Tim Switzer with KVW. Please go ahead, sir.
Tim Switzer: Hey, good morning. Thank you for taking my questions. I have a follow up on the margin trajectory.
Tim Switzer: in Q1. So we saw the long ago come down similar to Q4.
Paul Frenkiel, Andres Viroslav, Paul Frenkiel
Tim Switzer: Yeah, it was a mixed issue, so our program is very greatly, not on the economics of the program, but how it split between deposit and fees. And so we had one of our programs that is more deposit-based.
Tim Switzer: Deposit that we pay out, ballooned in the first quarter due to insurance payments. And so you saw a higher funding cost, which will roll off over the next quarter or so.
Tim Switzer: So it's these, it was about $500 million of deposits that are related to insurance settlements.
Tim Switzer: And that will roll off. And that was part of the reason you saw a higher deposit cost.
Tim Switzer: Okay, and so it says to assume that's also the reason we saw basically a $600 million increase to average cash on the balance sheet, which also weighed on the name.
was extremely strong and...
You know, we had for the first time deposit balances.
Tim Switzer: on many end of weekends that were 9 billion. We've never hit that type of number before. And so there was a lot of tax receipts. It actually had an impact on things like my pay because people got their tax returns, so they didn't take as much of our defintech loans in February , which reduced our fee income in February .
So it's um...
You know, it can be very volatile.
Tim Switzer: Okay, and if we think about the NII and then trajectory going forward, the mechanics of it, is this?
Tim Switzer: Nim improves in Q2 as those higher cost deposits roll off. And I guess it's probably fairly flat plus some growth-given willing growth.
It should be. Yes, so that's exactly, that's correct.
Tim Switzer: Okay, so the deposit card should move back down kind of in one of the 40% data ones.
It's depending on when those deposits, and we're also, there's more than that going on, we're offloading high cost deposits.
So we have variability in our deposit base. And so some higher costs.
Andres Viroslav, Paul Frenkieel
Speaker Change: Okay, gotcha. And then I have another quick question on the take rate on GDV. Looks like I can went down a little bit. Were there any one timers in there, or should we expect that to be a new rung rate going forward?
Speaker Change: No, that was once again that's very volatile. I think you have to look at that over. That's a mix once again It's a mix issue quarter to quarter and it's once again based on It's hard in the first quarter because it's the anomalous quarter due to the tax receipts
Speaker Change: So it should be, that was lower than usual. That's the first part. The second part is...
Speaker Change: The one-to-one that we used to experience is better if you put the two lines together. So, if you put that ACH and other fee line together with the card line, it's because our pricing has more and more moved.
to multiple products. And so, we just...
Speaker Change: And because of that, it's multiple fees coming from the same programs, so it's better to look at it by...
Speaker Change: You know, that 13% number is the way to look at the GDP. So if we had 18% growth and 13% total fee growth for the first two lines in the financial statements, you can keep the credit sponsorship out. That's even additive. But once again, that's the same program. Right. So for a time, you're getting. Thank you.
A Triple Layers [inaudible]
Speaker Change: You know, we call it the Lair Cake, but you got triple layers of fees.
Speaker Change: coming from the program. And if you look in the past and try to compare it, there weren't these other ancillary services. So it's much better to take the first two lines, the cart fees and the other fees together. Verse GDB, and that'll give you the first tube.
Speaker Change: You know, the first two fee sources for our larger programs and that's why that's a more relevant measure than it had say five years ago.
Speaker Change: Got it. Okay, that's helpful. And if I can have one more, please, there's been a lot of disruption in the banking as a service space with some smaller competitors are looking to exit or pull back at least and.
Frank Schiraldi: There's another competitor exploring strategic alternatives. Is this created any opportunities for Bancorp to maybe acquire new programs or portfolios or entire business lines? And what's your approach to that?
Yes, so we're working with the largest high-scroath partners.
And so, we've been preparing ourselves
We're looking at the very large expanding our large relationships.
Right?
and then adding product capabilities.
And I think we have some very exciting things.
Frank Schiraldi: Financial statements and when they happen and when they're willing to ready to be announced we'll either have a press release or a case.
Frank Schiraldi: So, we think our current GDP, you know, that 1813 is sustainable, and now with the enhancement of credit sponsorship, you know, we can think...
Your mid
1920s is
Frank Schiraldi: You know, a caterer of 25% is not out of the question, and we're still building other delivery models like embedded finance, which would enhance that additionally and add other credit sponsorship programs. So, we're preparing ourselves to have expanded relationships with more products
Frank Schiraldi: and a sustained level of higher GDV, which has a lot of implications. So, you know, we have to invest in our platform and make it extremely robust. We're not...
Speaker Change: You know, it's systemically important to the financial industry when you have such a big exposure to the largest programs that are
Speaker Change: You know that span 15 different verticals, but span every state of the union in almost every person. So we're investing in it, we expect
Speaker Change: sustained levels of higher GDP growth, and when we get a product or new relationship expansion that's meaningful, we will announce it when at the appropriate time.
Gallup, very clear. Thank you, Damian.
Thank you.
Speaker Change: The next question comes from Joe Yanchunis with Raymond James. Please go ahead.
Good morning.
Good morning.
So, I just want to follow up on, um,
Speaker Change: There's a difference between our plan and, say, our, just those four programs plan, so in our, in our own budget, it's in the eight.
You know, 50 range.
So, yes, the answer is yes.
Speaker Change: Even if we don't add a program, we'll be able to meet that $1 billion target.
Speaker Change: And we're ready well on the way. We're at 571 at the end of the quarter. The growth we're experiencing is very robust, so we think we'll be able to get there, even just with those four.
Speaker Change: Perfect. And then you're shifting gears here in the prior quarter you used, you know, about a quarter of your 2025 Sherry Purchase Authorization.
Speaker Change: Kind of given the recent dislocation, the stock should be expected to lean into the by back a little more, and front load your repert section for the ears.
Speaker Change: So, and I've mentioned this before but nothing has been decided and that's subject to board approval and everything else.
Speaker Change: Our net income, you know, kind of target is around the 250 level.
Speaker Change: and a hundred million of that is going to repay debt. Approximately a hundred million, we have one senior secured facility at the holding company level and we plan to repay that debt. And that's why our buyback is 150.
We would do more than that, and then we would use all those proceeds depending on the rates in the market.
Speaker Change: And our stock price, we would use that to enhance our buy back.
However, I just want to reiterate, nothing has been decided.
If weren't for it.
Speaker Change: We're on the track right now just to repay the debt, but it is being considered that we would raise probably more than the debt that's going to be.
Repaid
Speaker Change: and use those for buybacks depending on the prevailing rates and the stock price.
Speaker Change: Got it. Thank you for that. And then last one for me here, just kind of going back to the GDB growth. And I certainly understand your commentary about continuing to maintain at these current levels of not accelerate. Thank you very much.
Speaker Change: But is there any way to kind of look into, you know, all this pain and volume that you see and are you able to see any changes in behavior in the consumer in light of the kind of heightened economic uncertainty?
Speaker Change: Yes, so our data has been used by even institutions like the Fed, it's so broad to understand activity. So, the thing I would say is that work nominally based, not real dollars.
So, things like inflation. So, say you have consumer spending.
Speaker Change: Go down by 4% but inflation was 8. We'd actually have a 4% positive.
Normal, Everyday People, Doing Transactions
Speaker Change: That are absolutely necessary. You know, they're buying milk or they're going to the theater or whatever it is.
Speaker Change: And so, even if consumers spending goes down, in a deflation area environment it would be bad for us, they've, you know,
Paul Frenkiel, Andres Viroslav, Paul Frenkiel
Speaker Change: Spending is definitely not discretionary. A lot of our spending is necessary. You get a paycheck and you use a lot of people or paycheck to paycheck. Our portfolio tends to be more paycheck to paycheck individuals.
I understand. Thank you for taking my questions.
Thank you very much.
Thank you.
Speaker Change: The next question comes from Frank Schiraldi with Piper Sandler. Please go ahead, sir.
Frank Schiraldi: Yeah, hey Damian, just one follow-up, just on the Oreo property that is going to be or the been delayed to May that the closing date of the sale.
Speaker Change: And I know you're supposed to get that deposited in a couple of days. You mentioned in the release you talked about the change in ownership, I think, at the buyer and just kind of wondering your thoughts there. Are you still competent? Could this be? Yeah.
Frank Schiraldi: You know, is it more tenuous now that we haven't changed an ownership of the buyer or just your general thoughts on that closing in May?
I don't think so. This was this was in
Frank Schiraldi: They had a change in their group, this is a group that's trying to build a portfolio of assets, and this potential, this change in ownership strengthened that group. It didn't take away from that group.
Frank Schiraldi: And so, they had to work out among themselves through
Frank Schiraldi: Several different filings and negotiations and so they're continuing to support the property and they paid insurance and they're fixing the it's been leased up, you know it's not all the way leased up but it's in a much better position almost at the breakeven level it's in the.
Paul Frenkiel, Andres Viroslav, Paul Frenkiel
Frank Schiraldi: And they had this issue and we wanted to make sure that they, you know, they're still investing in the property So there is very good faith situation we're expecting we're still expecting to deposit in the close date to be held.
Great. Okay. I appreciate it. Thank you.
Thank you.
Frank Schiraldi: There are no further questions at this time. I'll turn the call over to Damian Kozlowski, the Chief Executive Officer. Please go ahead, sir.
Frank Schiraldi: Thank you, everyone, for joining us today. Operator, you can disconnect the call.
Frank Schiraldi: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.