Q2 2025 The Bancorp Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Bank Corp in second quarter 2025 earnings conference call.
At this time, all lines are in a lesson. Only mode following the presentation, we will conduct a questioning answer session. If anyone has any difficulties hearing the conference? Please press star zero for operator assistance at any time.
Andreas Virus: I would now like to turn the conference call over to Andreas virus, Bob, please go ahead.
Andreas Virus: Thank you, operator. Good morning, and thank you for joining us today for the bank Corps. Second quarter, 2025 Financial results conference call
Call with me today, are Damian klosky, chief executive officer and Marty Eagan? Our interim Chief Financial Officer.
Speaker Change: This morning's call is being webcast on our website at www.thebank.com. There will be a replay of the call available via webcast. On our website began approximately 12:00 p.m. eastern time today. The dial in for the replay is 18886606264 with a passcode of 45285 before I turn the call over to Damian. I would like to remind everyone that our comments and responses to questions. Reflects management for you as of today. July 25th 2025 yesterday, we issued our second quarter earnings release and updated investor presentation.
Andreas Virus: 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 for the private security litigation Reform, Act of 1995, and are subject to risk and uncertainty that could cause actual results to different materially from the expectations and assumptions. When we mentioned today,
Speaker Change: these factors are uncertainties or 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 Gap to adjusted non-gaap Financial measures are in the earnings release and the investor presentation.
Speaker Change: Please note, that the Bank Corp, owner takes no obligation to publicly release the results of any revisions to forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Now, I'd like to turn the call over to the bank Corps, chief executive officer, Damian Kozlowski Damien.
Thank you, Andre good morning everyone, the bank Court earned a $127 per diluted share in the second quarter on year-over-year. Revenue growth of 11%, excluding fintech loan, credit enhancement income with expense growth year. Overview of 11, percents, growth was 21%, year-over-year
Speaker Change: To be The Driver of Revenue growth.
We also announced a substantial increase to our share repurchase program over the next 18 months to 500 million beginning in the third quarter of 25, this buyback will be funded by quarter earnings growth and the replacement of maturing senior unsecured debt at the bank, or holding company of a 100 million aggregate outstanding with approximately 200 million of new, senior unsecured debt at the bank where holding company, we anticipate that 300 million of shares will be purchased for the remainder of 25. This is an increase of 200 and 255 million or 300% over the current buyback of 75 million for the last 2 quarters of 2025.
Speaker Change: In 2026, 200 million worth of shares are planned to be purchased with 50 million of purchases each quarter.
Speaker Change: Lastly We are continuing to retain our guidance of 525, earnings per share for 2025. We also are announcing Project 7 a project in which we are targeting at least a $7 earnings per share, run rate. By the end of 26. We plan to accomplish this goal through fintech Revenue growth, BuyBacks of shares, and efficiency and productivity, gains by reallocating Andor reducing resources, where appropriate, I now turn the call over to Marty Eagan, our interim CFO.
Thank you. Damian excluding consumer fintech loan. Credit enhancement income non-interest income for the second quarter of 2025 was 40.5 Million, which was 32% higher than the second quarter of 2024.
Total fintech fees, accounted for most of that increase.
Prepaid debit card a and other payment fees increased 14% to 31.7 million over that period and Consumer Credit fees increased 3.8 million to 4 million.
Speaker Change: In the second quarter credit enhancement income was 43.2 million and the provision for Consumer fintech. Loans was also 43.2 million.
Speaker Change: Overall loan, balances grew, 17% year-over-year, while loan balance is including consumer, print, Tech phones through 6%.
Speaker Change: Consumer fintech loans. Increased 871% year-over-year to 680.5 million?
Speaker Change: And 19% over the link quarter.
Speaker Change: Average fintech solution deposits for the quarter increased, 20% to 7.76 billion dollars from 6.44 billion in the second quarter of 2024.
Speaker Change: Net interest income was 4% higher than second quarter of 2024. For a second quarter. Net is just margin was 4.44% compared to 4. 0 7 5.
Speaker Change: The second quarter of 2025 included, a 3.1 million of interest on CR2, which was repaid in that quarter as a result of South, underlying collateral.
Speaker Change: Additionally, fees on the majority of our growing consumer fintech loan, balances are recorded as not interest income, which impacts both net interest income and net interest margin.
Not interest expense for the second quarter of 2025 was 57.2 Million, which was 11% higher than the second quarter of 2024.
Speaker Change: The increase included a 10%, increase in salaries and benefits.
Speaker Change: Additional details regarding our loan portfolios are included in related tables. In our press release as our earnings contributions of our payments business.
Damian Kozlowski: And now, to turn the call back to Damian.
Speaker Change: Thank you. Marty operator. Could you please open the lines for questions?
Speaker Change: Yes. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star and followed by the 1 on the touchdown Zone? Should you wish to cancel your request? Please press the star followed by the 2. If you are using a speaker-phone, please lift the handset. Before pressing any Keys once again, that is star 1. Should you wish to ask a question?
Speaker Change: And our first question is from Tim Schweitzer from KBW, your line is now open.
Tim Schweitzer: Good morning. Thank you for taking my questions. Um, congratulations on the new partnership with the block and cash app. Can you provide some details on if this is an entirely new product for them? Or if you are a new sponsor for a current product, um, and then any color,
Speaker Change: Sorry, go ahead.
Speaker Change: Go ahead.
Speaker Change: I was just going to say any color you can provide on what exactly you'll be doing like is this part of your rapid funds transfer offering like your other programs with block
Bank uh we'll see but this is 1 of the big programs, you know, there are 3 dominant programs, chime PayPal and block and so we now have the rft business in the card issuance business. This is a uh, as everyone knows. This is 1 of the major players in the fintech world and they have over 50 million customers. So it it's a very meaningful uh, to uh, it will be very meaningful in the future to both GDB and seed growth.
Speaker Change: Okay, so this is for the cash app card.
Speaker Change: Correct. Issuing. Okay, okay. Now, are you supplementing Sutton Bank? He's currently the issuer, or replacing them?
Speaker Change: Um, well the we the Mandate is to, uh, replace that volume.
Speaker Change: Over time.
Speaker Change: Okay, okay, okay, great. Um, and then, I also wanted to ask about the lower deposits. This quarter was that kind of an action by you, to manage the balance sheet or what was the driver there.
Speaker Change: Correct. That's uh, there was a a couple of
Speaker Change: Uh, that there's tax receipts during that part of the year and we actually took some uh savings deposits off balance sheet and we also had 500 million dollars of, uh, Insurance deposits, through our corporate payments Partners, uh, for the, uh, California wildfires. So that's running off uh, plus the tax season. It was a very big tax season this year.
Uh and then we took some of the excess liquidity also off balance sheet so that was all balance sheet management driven.
Gotcha. Okay. Um and then we saw the criticized loans and non acral step up a little bit in the rebel book can can you with with the book of um that portfolio reaching maturity over the next year? Can you provide some color on borrower's ability to make the balloon payment? How many have taken
Speaker Change: Um, you know, the 1 year extension versus paying off the loan entirely, how? How many need to do it? Inject additional Equity, or find another lender?
Speaker Change: Yeah, so this is It's not like a a point in time. We're always working with these borrowers. So we have a lot of visibility as to their business plans and whether they plan to recap,
Speaker Change: uh, or do something else, potentially, if there's a problem or just simply the repay or extend the loan,
Speaker Change: So in the case, where they're doing their business plan and need a little bit more time, there's kind of a natural extension and that's gone up.
Speaker Change: Uh over recent times, just because of market conditions, which we're fine with obviously if you have a performing property and its cash flowing and it's metal, it's requirements extensions are are a good thing for us, uh, in the case of where and and what, what what happens is that you see this way before, well, many of these loans were done in this vintage, we have a lot of visibility. So if there's any issues with that, they would have already appeared
Speaker Change: in the, uh, criticized or substandard assets,
So it's not like there's this this date and then we don't know what's going on and we don't know what's going to happen with the borrower. So we've been working through that over the last
Speaker Change: last year. Uh, so you don't, you don't, we don't expect the big, another spike in substandard assets. We had kind of a spike in the third fourth quarter of last year, went down a little bit in the fourth quarter and it's been a little bit stable, hopefully, we'll be able to work through that. The next it's taking a little longer than we want. We had the Aubry situation where we, uh, weren't able to close the property, but we are hoping over the next 2 quarters that'll go down leaning fully.
Damian Kozlowski: Okay, great. Thank you. Damian
Speaker Change: Thank you. And our next question is, from Joey and Janice from Raymond James. Your line is now open.
Speaker Change: Good morning.
Speaker Change: Good morning, David.
Speaker Change: So I I I was hoping to kind of continue the credit discussion there. I you know, with respect to the Aubry. I believe it was undergoing some Renovations before
Speaker Change: the prior contract was terminated are those
Renovations continuing and are you guys funding? Those
Speaker Change: Yes. So there there are about 20 units available to rent. So the
Speaker Change: It's, it's in the 10 to 15% range. We will fund it. Uh, obviously that we have the deposit, hopefully, we'll be able to recapture that. And then, uh, the equation would be at that point. If we levered, uh, excuse me fully, uh, least up the property. Then uh, we would look not only to get out of the uh, base loan that we have. Uh, but we would also look to get a gain on the property at that point, if we were able to lease it up to its to the 90% redo.
Speaker Change: I appreciate that. And um, 1 more on your expanded partnership with blocker. Are there going to be any Associated? Expenses leading up to the new card program?
Uh, we're very, yes. So it's our base infrastructure is very leverageable and many of the categories, but there will be incremental hires. Uh, so, um, there won't be a lot. Uh, we'll have to, and we're getting a lot of efficiencies over time, uh, and productivity enhancements through through things like machine learning. Hopefully AI uh, will kick in in the next year or 2, uh, but there will be additional resources. So there there might be a little bit extra in the third and fourth company. Uh, cord is ramping up, but usually as the volume that's maybe a few, but when the volume starts kicking in then we'll have to assess adding additional resources. But then, of course, we'll be getting
Large, uh, uh, you know, volume and revenue increases, so it'll be offset obviously. Uh, so a little bit of build maybe but then when the volume comes in yet, we'll have to add additional resources depending on where we are with our productivity gains.
and then,
Speaker Change: just kind of sticking with the
Speaker Change: on your release, you know, targeting.
Speaker Change: You know 4K 26 Epps of at least a dollar 75 which will be driven by several factors. Including you know, these productivity gains
Speaker Change: Can you talk about, you know, where you see the benefits of AI impacting your business? And it sounds like that might be a
Speaker Change: You know, latter half of 26 event if I kind of read the tea leaves right in your prior answer.
Speaker Change: Well, there's 2, there's 2 things, that's 1 Thing. The first thing though, is that we really have, had 2, 2 2 Banks, kind of app, operating its synergistically. But 2 Banks 1 was a more of a Traditional Bank while we were Levering up the banks, spread increases dominated kind of our profitability, but that's switching to our, you know, it's not no longer a payments bank. It's really a, a middle office. It's been Tech and Technology platform that ecosystem that we built for the fintech industry. And so that is rapidly growing very, very quickly adding new partners and product sets. And so
Speaker Change: We're becoming much more focused on that fintech bank. So as that happens, we've already said for years that we're going to take some of the traditional Bill. Uh businesses off the balance sheet that will be lower uh on balance sheet for those businesses. And we'll need to reallocate a resources as the fintech business increases its use of the balance sheet, right? And in many cases, that's just the reallocation. We want to get to a situation in uh, 3 years 5 years where we add a couple hundred people. We go from 800 to 1,000 people, but when we double the net income we're not going to go from 800 people to 1600 people, right? So some of that is that we we allocating resources from the traditional to the fintech bank. Now, on the AI front, there's so much happening in this space. Uh, 1 of the key areas where it's likely that we were already using tools, it's in our uh, we're using broad tools for people to get more productive over.
Speaker Change: We're using uh, tools and say for legal contracts Etc. Where AI is is is very well suited, but going into the future. Um, there are things like SARS filing, uh, you know, doing the initial work, uh, where there could be big, productivity gains. And so we're not going to be the first person to do it, but we're already studying those things and we really want to lean into it in 26. So we're looking for use cases, uh, very aggressively, uh,
Speaker Change: Which means that, obviously, as we grow. So the first point we won't have to go from doubling the amount of people uh, into the future. When we have sizable gains in gdv, which we expect, right? We've been over trend for a while. Um, adding black is going to add another, a leg to the gdv growth, and we want to make sure that we, um, Can resource that very effectively in productivity productively with um, the best use of tools, uh, in areas like AI.
Very thorough answer. I appreciate you taking my questions this morning.
Speaker Change: Thank you once again please press star. 1 should you wish to ask a question? And your next question is from eras, ganga from sickness Capital, your line is now open.
Eras Ganga: For taking my call.
Eras Ganga: From March. Uh, the disclosure was roughly 1.4 billion of Rebel loans would be maturing within the next 12 months. And so my first question is, you know, given where uh, interest rates are third-party Capital availability for these types of properties. Would you expect that the majority of that 1.4 billion would be refinanced?
Eras Ganga: My third parties or should we instead expect that you guys will end up having to extend and modify those loans.
Eras Ganga: Maturities.
Well, once again, if they're on their business, we have 2 1-year, uh, extensions available to borrowers, um, and if they're on their business, with the vast majority are on their business plan cash flowing, properties. We're more than happy to extend those loans. With the, if they want to wait for lower interest rates, uh, most of the exits of if they're stabilized properties, uh, can exit, uh, through the gses. So, that's the main refinance.
Eras Ganga: Uh, or you know, a 5 year fixed. It's really about their
Eras Ganga: When you have a maturing performing loan, that's really about their, the sponsors planning, you know, are they waiting for an interest rate, decrease or not? Which is obviously, on top of mind for everybody, um, the the ones once again, we're working with these borrowers all the time. So, there's that while there is a lot of, uh, kind of a maturity wall because a lot of these were done, um, a year pretty much into the pandemic when we restarted the business, uh, it's it's a wall that we understand really well and we've already identified. So you see the the universe of it's just a handful of loans that are the substandard category those have already been identified. If there's a real issue with the business plan so we we're working through it diligently. We don't
Don't expect there to be a lot of increases in substandard category. We think we've peaked, um, and we think that over the next few months, we'll work through that maturities and, um, we'll also see a decline in substandard loans.
Eras Ganga: Okay, appreciate that. And since you mentioned the sort of uh peak in, you know, substandard you know loans. Um I'm going back to sort of
Eras Ganga: 23 of last year, where I think you made some similar comments around not expecting to see, uh, you know,
Speaker Change: Significant increase in criticized Rebel loans but looking at the disclosure from the press release, it looks like non-accrual loans did pick up sequentially, as did special mentioned and substandard went down a little bit to help us understand kind of, you know, versus 6 months ago, when we were all together on the Q3 call. What's kind of driven the higher, non-accrual higher, special mention, uh, loans versus your prior view around, Q3 being the prior Peak.
Speaker Change: Yeah, well that I well, the first thing is the Aubrey. We expected that to be closed at off the books. Uh, there was a lot of momentum on that property and we were holding, obviously a deposit on that property, so that was a surprise. Um, so that's the first thing. So that would have rolled off and obviously substandard or o o r e. Uh, would have went down the um the non-accruals actually in a recap process. So we're hoping to get that.
Speaker Change: Off the books. Also uh next quarter uh it took a little bit longer than we thought and as a a matter of prudence we put it in non acral into that recap was done. It's just taking longer than we had expected to reduce the substandards. It hasn't really increase the um,
Speaker Change: Again, we're working on it. It's a handful of loans. It's very manageable. Uh uh, we have a lot of visibility. We're working, very proactively and when you you have these situations sometimes they just take a little bit longer uh, and to, to resolve. So we're working very hard to do that.
Speaker Change: Okay, no, appreciate that color. And just, uh, last couple of questions, quick ones on the Aubrey. Um, I noted the new appraisal that was done, uh, 51 million as is and ballpark 59 million as stabilized. If you could help us reconcile those higher appraised values versus the the prior 1, which is something in the 40, Millions range. Um, reconcile, you know why the appraisal went up in value
Speaker Change: When you've gone through a process now, for the better part of 15 months where you haven't been able to find a buyer at a value, even at the outstanding loan amount meaning, what really what I'm asking is that market tests versus, you know, funding a spreadsheet, you know, putting a cap rate on noi help us reconcile. The appraisal versus Market test process
Speaker Change: Yeah, well, we had a buyer and they put actually money into the property, uh, and put a, a sizeable deposit, and couldn't close the transaction, which is unfortunate. Uh, but during that time, uh, we we substantially changed a lot of investment went into the property. It went from a 35% uh occupancy all the way up to the mid-60s.
Speaker Change: Uh and obviously a lot of visibility on the rents that are realized. So what people have done investors have actually done and you can actually go on the Aubrey Houston website and see it. The property is business as usual. It's in a very different state than it was 8 to 12 months ago. And so the appraisal is done totally on a third-party basis, looking at comps and everything else. So it went up from 48 to I think it was 51. So it went up, 3 million dollars based on those criteria and obviously a stabilized increased um as the property is improved, so we don't obviously, uh, we're not the appraiser that's done on the third-party basis and so because of those metrics, the rent's realized the occupancy, the market conditions. This is property is in a good neighborhood. It's it's uh, it's, it's obviously in the top
Speaker Change: Its current state, it's 1 of our Better Properties with good amenities and everything. So that is the Appraiser's value. That's not ours.
Okay. And then last
Speaker Change: um, you reference the earnest money deposits, um, you know, in the dispute with the buyer around who
Speaker Change: That money.
To the deal. Didn't close.
Speaker Change: From a financial statement point of view, how have you accounted for that 3 million? Have you kind of reflected or receivable expecting to collect it? Or is it somehow there's a reserve on it if you can help us understand how you've accounted for that, please?
Speaker Change: Yes, so it would be a because of the appraisal at caveman uh it would be if we take that.
if we get that deposit, they've objected to it, which is
Speaker Change: You know, we don't think we think we will get that deposit but you can't object to it in these situations.
Speaker Change: uh,
Speaker Change: so,
Speaker Change: It will be income, it hasn't been recognized as income yet.
Speaker Change: Uh, because of, uh, it's been disputed, but we expect to get that and then it'll be realized in income.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you, thank you. And our next question is, from, Tim Switzer from KBW, your line is now open.
Hey guys, thanks for letting me back in. Um, I I wanted to follow up on the question about the earnest money. I how quickly should this earnest money litigation, be resolved, and like what is the legal process for that? Are you guys pretty confident? You'll be retaining all the money, um, currently in escrow
Speaker Change: Uh, we hope so. I mean, it was, I think we think we have
Speaker Change: Clear.
Speaker Change: It's very clear. I mean there there was a deposit put down for the purchase of the property. The uh, of course you get a situation, you're going to get an objection and so it's really up the court to weigh the evidence. But we believe it's pretty clear-cut that, uh, that that deposit should come to us without, you know, a lot of delay. We're hoping to resolve it in next quarter.
Speaker Change: Okay, good to hear. Um, and then outside of the Rebel book there, there's a little bit of an increase in MPA. It looks like it was largely in the SPL book. Um, could you provide some color there? We've seen across the industry for small business lending. Um, there there's been a little bit of credit migration.
Speaker Change: 1 and it it really wasn't a lot. Um, we are, we aren't seeing a deterioration really in the portfolio. I mean, it's very low. Um,
and and obviously, in these cases, there's
Uh, many of these cases there's back stops, uh, obviously through bsba programs. So we're not worried about that. There was a little tick up. The main focus really is um, um, we think we're in good shape on the SBA and the leasing portfolio. We had a little Trucking uh, like everyone else did issues and leasing portfolio and that's kind of run off.
Speaker Change: Uh, we're not seeing the same thing anymore that's kind of we don't have that much left either in that space so those portfolios seem to be in very good shape. The the main focus has been getting those substandards down in the uh Rebel portfolio but also the maturity what people see as a wall. But we see more as a very you know a 12-month process of working with Buyers to refinance or extend their loans. Uh so it's it's we think we're in good shape in that area at this point.
Speaker Change: Okay. Um, and then if I get 1 more, you guys are bringing on a lot of volume with the new programs with chime new partners like block.
Um, how much more capacity do you have for, you know, new partners and new programs? There's obviously a lot of demand out there. So just wondering, you know, if you guys are still able to uh, continue taking care,
Speaker Change: Yeah. Well, the share is determined by. Who you have in your portfolio. Do you have the
Speaker Change: You know, the winners in the fintech space, a lot of this, in many of these areas, it's been decided. And so, and you see it by looking at commercials during any sporting event. You'll see, you'll see these commercials many times, our name will appear on the bottom. We have built an ecosystem where we could have 5 times the volume that we have. Today, we have a process to take the deposits off the balance sheet or way of working with our partners where we have clearing accounts. You know, we've had this, we've been building this since 2018, um, really focused on building this. Very, um, you know, we doing the entire Tech, stack redoing our infrastructure so that we could accommodate, um, dramatically higher, uh, gross dollar volume. Now, to be honest, we never envisioned 5 years ago, that would be this much opportunity. And with the addition of block um, having the 3 largest really the the 3 largest digital wallets
Speaker Change: Neil Banks, uh, which dominate the marketplace with with marketing spend and everything, you know, and have other opportunities with those 3 that go beyond that um, is really a big driver, right? And but that's across our verticals. Do you have the winners in these fintech spaces? In many cases? We do? And so they have this proportionate, um, opportunity out there because they have the ability to invest in their businesses, with marketing spend and, uh, we, we believe we can support it, you know, you know, we could have easily multitudes of volume. And we've been preparing for this for, uh, the better part of, at least 5 years. It's not more years.
Speaker Change: Yeah, makes sense. Um appreciate all the color. Thank you.
Speaker Change: Thank you. There are no further questions at this time. I will now hand the call back over to Damian kaslowski for the closing remarks.
Damian Kozlowski: Thank you everyone for joining us today. Operator, you can disconnect the call
Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all at your lines.