Q1 2026 The Bancorp Inc Earnings Call

April 24, 2026

Speaker #1: Hello everyone, and welcome to The Bancorp Inc Q1 2026 earnings conference call. Please note that this call is being recorded. After the speakers' prepared remarks, there will be a question-and-answer session.

Operator: Hello everyone, and welcome to The Bancorp, Inc.'s Q1 2026 Earnings Conference Call. Please note that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I'd now like to hand the call over to Andres Viroslav. Please go ahead.

Operator: Hello everyone, and welcome to The Bancorp Inc.'s Q1 2026 Earnings Conference Call. Please note that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I'd now like to hand the call over to Andres Viroslav. Please go ahead.

Speaker #1: If you'd like to ask a question during that time, please press star followed by 1 on your telephone keypad. Thank you. I'd now like to hand the call over to Andres Viroslav.

Speaker #1: Please go ahead.

Speaker #2: Thank you, operator. Good morning, and thank you for joining us today for The Bancorp's first quarter 2026 financial results conference call. On the call with me today are Damian Kozlowski, Chief Executive Officer, and Dominic Canuso, our Chief Financial Officer.

Andres Viroslav: Thank you, operator. Good morning, and thank you for joining us today for The Bancorp's Q1 2026 financial results conference call. On the call for me today are Damian Kozlowski, Chief Executive Officer, and Dominic C. Canuso, our Chief Financial Officer. This morning's call is being webcast on our website at www.thebancorp.com. There'll be a replay of the call available via webcast on our website beginning at approximately 12:00 PM Eastern Time today. The dial-in for the replay is +1 800-770-2030 with a passcode of 954517. Before I turn the call over to Damian, I would like to remind everyone that our comments and responses to questions reflect management's view as of today, 24 April 2026. Yesterday, we issued our Q1 earnings release, and updated investor presentation. Both are available on our investor relations website.

Speaker #2: This morning's call is being webcast on our website at www.thebancorp.com. There will be a replay of the call available via webcast on our website beginning at approximately 12:00 p.m. Eastern Time today.

Speaker #2: The dial-in for the replay is 1-800-770-2030, with a passcode of 954-5117. Before I turn the call over to Damian, I would like to remind everyone that our comments and responses to questions reflect management's view as of today, April 24, 2026.

Speaker #2: Yesterday, we issued our first quarter earnings release and updated investor presentation. Both are available on our investor relations website. We will make certain forward-looking statements on this call.

Speaker #2: 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 we mentioned today.

Andres Viroslav: 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 we mention today. These 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. 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 #2: These 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.

Speaker #2: 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 #2: Now, I'd like to turn the call over to The Bancorp's Chief Executive Officer, Damian Kozlowski. Damian?

Andres Viroslav: Now I'd like to turn the call over to The Bancorp's Chief Executive Officer, Damian Kozlowski. Damian?

Speaker #3: Thank you, Andres, and thank you for joining our call today. The Bancorp earned $1.41 a share in the fourth quarter. EPS growth year over year was 18%.

Damian Kozlowski: Thank you, Andres, and thank you for joining our call today. The Bancorp earned $1.41 a share in Q4. EPS growth year over year was 18%. Q1 ROE was 35.1, and ROA was 2.57. Fintech GTV continues to grow above trend at 18% year over year. Revenue growth from the quarter, which includes both fee and spread revenue, was 15% year over year. Our three main fintech initiatives continue to move forward quickly and are well positioned for success. Our onboarding of new programs and expansion of current programs continues at pace. Cash App program has been launched. It will ramp up during 2026 and 2027 and show progressive accretion to our financials. Credit Sponsorship balances soared in Q1 to $1.65 billion. A 50% non-annualized increase over Q4 of 2025.

Speaker #3: First quarter ROE was 35.1, and ROA was 2.57. FinTech GDV continues to grow above trend at 18% year over year. Revenue growth in the quarter, which includes both fee and spread revenue, was 15% year over year.

Speaker #3: Our three main FinTech initiatives continue to move forward quickly, and are well-positioned for success. Our onboarding of new programs and expansion of current programs continues at pace.

Speaker #3: The Cash App program has been launched. It will ramp up during 2026 and 2027 and show progressive accretion to our financials. Credit sponsorship balances soared in the first quarter to $1.65 billion.

Speaker #3: A 50% non-annualized increase over the fourth quarter of '25. As previously stated, we expect to launch at least two significant additional programs in '26; announcements are subject to our partners' marketing timelines.

Damian Kozlowski: As previously stated, we expect to launch at least two significant additional programs in 2026. Announcements are subject to our partners' marketing timelines. Embedded finance platform is close to completing the development of its first operational use case. We plan to announce at least one client in this area in 2026. We also made continued progress in reducing our criticized assets, which includes both substandard and special mention assets. These assets declined from $194.5 to 163.1 million or 16% quarter-over-quarter. We expect more progress over the next few quarters. Lastly, we are maintaining our guidance of $5.90 EPS for 2026 with $1.75 a share in Q4. Our expectation for 2027 EPS is in a range of $8.10 to 8.30.

Speaker #3: The embedded finance platform is close to completing the development of its first operational use case. We plan to announce at least one client in this area in '26.

Speaker #3: We also made continued progress in reducing our criticized assets, which includes both substandard and special mention assets. These assets declined from $194.5 million to $163.1 million, or 16% quarter over quarter.

Speaker #3: We expect more progress over the next few quarters. Lastly, we are maintaining our guidance at $5.90 EPS for '26, with $1.75 a share in the fourth quarter.

Speaker #3: Our expectation for '27 EPS is in a range of 810 to 830. 2026 buybacks are forecast to be $200 million total, and $50 million per quarter in '26, with '27 buybacks equal to near 100% of net income in the year.

Damian Kozlowski: 2026 buybacks are forecast to be $200 million total and $50 million a quarter in 2026, with 2027 buybacks equal to near 100% of net income in the year. Our three major fintech initiatives, along with platform efficiency gains from restructuring and AI tools, plus a high level of capital return through continued buybacks, will be the driving forces behind EPS accretion. EPS gains are subject to development and implementation timelines in fintech. I now turn the call over to our CFO, Dominic C. Canuso. Dominic?

Speaker #3: Our three major FinTech initiatives, along with platform efficiency gains from restructuring and AI tools, plus a high level of capital return through continued buybacks, will be the driving forces behind EPS accretion.

Speaker #3: EPS gains are subject to development, implementation timelines, and FinTech. I now turn the call over to our CFO, Dominic Canuso. Dominic?

Speaker #2: Thanks, Damian. The first quarter builds on our momentum and strategy from 2025 and is setting up for a strong 2026. Ending loans for the quarter are $7.75 billion, which is a 9% non-annualized linked-quarter growth, and 22% growth year over year.

Dominic C. Canuso: Thanks, Damian. Q1 builds on our momentum and strategy from 2025 and is setting up for a strong 2026. Ending loans for the quarter are $7.75 billion, which is a 9% non-annualized linked quarter growth and 22% growth year over year. Credit Sponsorship growth accounted for 88% of total loan growth linked quarter and 83% of total loan growth year over year, bringing the segment to approximately 21% of total loans, up from 15% prior quarter, and 9% a year ago. Our strategy is to continue to shift the loan mix towards the higher returning, lower cost Credit Sponsorship business. Average deposit growth was also a robust 9% non-annualized linked quarter, fully funding the loan growth with an average deposit cost of 1.7% in the quarter, which was a 7 basis point decrease from prior quarter and 53 basis points lower than the prior year quarter.

Dominic Canuso: Thanks, Damian. Q1 builds on our momentum and strategy from 2025 and is setting up for a strong 2026. Ending loans for the quarter are $7.75 billion, which is a 9% non-annualized linked quarter growth and 22% growth year over year. Credit Sponsorship growth accounted for 88% of total loan growth linked quarter and 83% of total loan growth year over year, bringing the segment to approximately 21% of total loans, up from 15% prior quarter, and 9% a year ago. Our strategy is to continue to shift the loan mix towards the higher returning, lower cost Credit Sponsorship business. Average deposit growth was also a robust 9% non-annualized linked quarter, fully funding the loan growth with an average deposit cost of 1.7% in the quarter, which was a 7 basis point decrease from prior quarter and 53 basis points lower than the prior year quarter.

Speaker #2: Credit sponsorship growth accounted for 88% of total loan growth quarter over quarter and 83% of total loan growth year over year, bringing the segment to approximately 21% of total loans, up from 15% in the prior quarter and 9% a year ago.

Speaker #2: Our strategy is to continue to shift the loan mix towards the higher-returning, lower-cost credit sponsorship business. Average deposit growth was also a robust 9% non-annualized linked quarter, fully funding the loan growth.

Speaker #2: With an average deposit cost of 1.7% in the quarter, which was a 7 basis point decrease from the prior quarter, and 53 basis points lower than the prior year quarter.

Speaker #2: We also ended the quarter with $1.34 billion in off-balance sheet deposits, compared to $850 million at the end of the fourth quarter and $793 million in the prior year.

Dominic C. Canuso: We also ended the quarter with $1.34 billion in off-balance sheet deposits, comparing to $850 million at the end of Q4 and $793 million prior year, demonstrating the continued growth of our partnership-based deposit franchise, along with the strength of our overall liquidity position. NIM was 3.87% in the quarter, down 43 basis points from prior quarter, and 20 basis points prior year's quarter. The decrease versus prior quarter is driven by both the mix shift in loans to credit sponsorship and the lagged impact of the lower short-term rates on variable rate loans. For some additional context on NIM, especially as we continue to mix shift loans towards fintech, our fintech lending fees are the equivalent to an additional 24 basis points of net interest margin.

Dominic Canuso: We also ended the quarter with $1.34 billion in off-balance sheet deposits, comparing to $850 million at the end of Q4 and $793 million prior year, demonstrating the continued growth of our partnership-based deposit franchise, along with the strength of our overall liquidity position. NIM was 3.87% in the quarter, down 43 basis points from prior quarter, and 20 basis points prior year's quarter. The decrease versus prior quarter is driven by both the mix shift in loans to credit sponsorship and the lagged impact of the lower short-term rates on variable rate loans. For some additional context on NIM, especially as we continue to mix shift loans towards fintech, our fintech lending fees are the equivalent to an additional 24 basis points of net interest margin.

Speaker #2: Demonstrating the continued growth of our partnership-based deposit franchise, along with the strength of our overall liquidity position. NIM was 3.87 in the quarter, down 43 basis points from prior quarter, and basis points prior year's quarter.

Speaker #2: The decrease versus the prior quarter is driven by both the mix shift in loans to credit sponsorship and the lagged impact of the lower short-term rates on variable rate loans.

Speaker #2: For some additional context on NIM, especially as we continue to mix shift loans towards FinTech, our FinTech lending fees are the equivalent to an additional 24 basis points of net interest margin.

Speaker #2: In addition, given the volume of off-balance sheet deposits, we generated $900,000 from deposit sweep fees, which is recognized in other income. This equates to another 4 basis points of net interest margin.

Dominic C. Canuso: In addition, given the volume of off-balance sheet deposits, we generated $900,000 from deposit sweep fees, which is recognized in other income, which equates to another four basis points of net interest margin. Net interest income mix, excluding credit enhancement, was 33%, compared to 30% in Q4 and 29% in Q1 2025. Fintech fee revenue is 29%, compared to 27% for both prior quarter and prior year quarter. It is important to note that the growth in the credit sponsorship loans that we saw in the quarter is a leading indicator of fintech fee growth both in the lending fees and higher transaction fees due to the higher volume of return in that portfolio. Regarding credit, we continue to see improvement in both our current and leading credit metrics, with particular note in REBL and leasing.

Dominic Canuso: In addition, given the volume of off-balance sheet deposits, we generated $900,000 from deposit sweep fees, which is recognized in other income, which equates to another four basis points of net interest margin. Net interest income mix, excluding credit enhancement, was 33%, compared to 30% in Q4 and 29% in Q1 2025. Fintech fee revenue is 29%, compared to 27% for both prior quarter and prior year quarter. It is important to note that the growth in the credit sponsorship loans that we saw in the quarter is a leading indicator of fintech fee growth both in the lending fees and higher transaction fees due to the higher volume of return in that portfolio. Regarding credit, we continue to see improvement in both our current and leading credit metrics, with particular note in REBL and leasing.

Speaker #2: Non-interest income mix excluding credit enhancement was 33%, compared to 30% in the fourth quarter and 29% in the first quarter of 2025. FinTech fee revenue is 29%, compared to 27% for both the prior quarter and the prior year quarter.

Speaker #2: It is important to note that the growth in the credit sponsorship loans that we saw in the quarter is a leading indicator of FinTech fee growth, both in the lending fees and higher transaction fees due to the higher volume of churn in that portfolio.

Speaker #2: Regarding credit, we continue to see improvement in both our current and leading credit metrics, with particular note in Rebel and leasing. Rebel criticized loans are down $24 million, or 29%, to $59 million from the prior quarter, and down 75% over the last 18 months.

Dominic C. Canuso: REBL bridge loans are down $24 million, or 29%, to $59 million from prior quarter, and down 75% over the last 18 months. When excluding fintech credit sponsorship loans, which are supported by full credit enhancements, our traditional lending portfolio saw a provision reversal of $1.3 million, even as the traditional lending portfolio grew in the quarter. The release of reserve was primarily driven by specific reserve reductions in our leasing portfolio that were established in Q3 2025 as positive progress continues to be made with those borrowers. Non-interest expense for the quarter was $55 million, with an efficiency ratio of 41.5% when excluding the credit enhancement revenue. We continue to invest in the fintech platform, including building out embedded finance capabilities, along with launching new products.

Dominic Canuso: REBL bridge loans are down $24 million, or 29%, to $59 million from prior quarter, and down 75% over the last 18 months. When excluding fintech credit sponsorship loans, which are supported by full credit enhancements, our traditional lending portfolio saw a provision reversal of $1.3 million, even as the traditional lending portfolio grew in the quarter. The release of reserve was primarily driven by specific reserve reductions in our leasing portfolio that were established in Q3 2025 as positive progress continues to be made with those borrowers. Non-interest expense for the quarter was $55 million, with an efficiency ratio of 41.5% when excluding the credit enhancement revenue. We continue to invest in the fintech platform, including building out embedded finance capabilities, along with launching new products.

Speaker #2: When excluding FinTech credit sponsorship loans, which are supported by full credit enhancement, our traditional lending portfolio saw a provision reversal of $1.3 million, even as the traditional lending portfolio grew in the quarter.

Speaker #2: The release of reserve was primarily driven by specific reserve reductions in our leasing portfolio that were established in the third quarter of 2025, as positive progress continues to be made with those borrowers.

Speaker #2: Net interest expense for the quarter was $55 million, with an efficiency ratio of 41.5% when excluding the credit enhancement revenue. We continue to invest in the FinTech platform, including building out embedded finance capabilities, along with launching new products.

Speaker #2: At the same time, we are leveraging AI and redeveloping costs across the organization to continue to improve efficiency and allocate resources to support our FinTech initiatives.

Dominic C. Canuso: At the same time, we are leveraging AI and redeploying costs across the organization to continue to improve efficiency and allocate resources to support our fintech initiatives. Operator, you may now open the call for questions.

Dominic Canuso: At the same time, we are leveraging AI and redeploying costs across the organization to continue to improve efficiency and allocate resources to support our fintech initiatives. Operator, you may now open the call for questions.

Speaker #2: Operator, you may now open the call for questions.

Speaker #3: We are now opening the floor for the question and answer session. If you'd like to ask a question, please press star followed by 1 on your telephone keypad.

Damian Kozlowski: We are now opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. Your first question comes from the line of Joseph Yanchunis of Raymond James. Your line is now open.

Operator: We are now opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. Your first question comes from the line of Joseph Yanchunis of Raymond James. Your line is now open.

Speaker #3: That star followed by 1 on your telephone keypad. Your first question comes from the line of Joe Yanchunis of Raymond James. Your line is now open.

Speaker #2: Thank you. And good morning, guys.

Speaker #4: Good morning, Joe.

Speaker #2: So with your 2026 EPS outlook reiterated, can you talk a little more about your embedded finance offering and this initiative's impact on 2026 results?

Joseph Yanchunis: Thank you, and good morning, guys.

Damian Kozlowski: Good morning, Joe.

Joseph Yanchunis: With your 2026 EPS outlook reiterated, can you talk a little more about your embedded finance offering and this initiative's impact on 2026 results? I mean, how long will it take to onboard this first partner after announcement? Obviously, partner delays are a thing in this space. I just was hoping to get a little more color on that from your end.

Speaker #2: I mean, how long will it take to onboard this first partner after announcement? Obviously, partner delays are a thing in this space, and just was hoping to get a little more color on that from your end.

Speaker #4: Yeah, we have very little revenue for embedded finance in '26. We have more in '27, but you're exactly right. We're likely to announce at least one partner.

Damian Kozlowski: Yeah. We have very little revenue in for embedded finance in 2026. We have more in 2027. You're exactly right. We're likely to announce at least one partner. It does take a while to fully build out the capability, depending on what the use case is. It could be very limited or it could be very broad. That impact of embedded finance will really be fulfilled in 2027 and 2028. Very little revenue is in our own plan for 2026 for embedded. Now, we do have revenue in there for continued sponsored lending growth and for a potential announcement around two new partners. That has more of an impact than the embedded would on our own budget.

Speaker #4: It does take a while to fully build out the capability. Depending on what the use case is, it could be very limited, or it could be very broad.

Speaker #4: So that impact of embedded finance will be felt, fulfilled in ’27 and ’28. So very little revenue is in our own plan for ’26 for embedded.

Speaker #4: Now, we do have revenue in there for continued sponsored lending growth and for a potential announcement around two new partners. So, that has more of an impact than the embedded would on our own budget.

Speaker #2: Got it. That's helpful. And in your prepared remarks, you discussed some metrics behind your off-balance sheet deposit. And that strategy—how should we expect this to evolve over the coming quarters?

Joseph Yanchunis: Got it. That's helpful. In your prepared remarks, you discussed some metrics behind your off-balance sheet deposit and that strategy. How should we expect this to evolve over the coming quarters? I assume the amount earned per deposit is based on the individual deposit costs, and correct me if I'm wrong there. Will the biggest driver of revenue growth from this be moving more deposits off balance sheet or getting better economics for deposits?

Speaker #2: I assume the amount earned per deposit is based on the individual deposit costs, and correct me if I'm wrong there. But will the biggest driver of revenue growth from this be moving more deposits off-balance sheet, or getting better economics per deposit?

Speaker #4: It's both, right? So over time, we take the higher-cost deposits off the balance sheet. And we do, depending on the program that we're taking off the balance sheet, we may get some spread on that, right?

Damian Kozlowski: It's both, right? Over time, we take the higher cost deposits off the balance sheet. We do, depending on the program that we're taking off the balance sheet, we may get some spread on that. Right? In our own forecast, that's a small part. It's basically gravy, on the way we look at our own forecasting over the next 3 to 5 years. It wouldn't be as we grow the other parts, the main initiatives, that's literally gravy on top. It's not a big part of our own planning. They're volatile, right? It depends on the program. They will grow. We'll have lower basis points on what we have to pay out as we take more higher-yielding deposits off the balance sheet. In select occasions, we will get some spread on transferring those deposits through our network to other banks.

Speaker #4: In our own forecast, that's a small part. It's basically gravy on the way we look at our own forecasting over the next three to five years.

Speaker #4: It wouldn't be, as we grow the other parts, the main initiatives—that's literally gravy on top. It's not a big part of our own planning.

Speaker #4: And they're volatile, right? And it depends on the program. But they will grow; we'll have forced lower basis points on what we have to pay out as we take more higher-yielding deposits off the balance sheet, and in select occasions, we will get some spread on transferring those deposits through a network to other banks.

Speaker #2: Okay. I appreciate that. What about the Aubrey? What are your current thoughts on the timing of selling that property? And has your expectation around the sale price changed given the recent softness that we've seen in rent prices?

Joseph Yanchunis: Okay. I appreciate that. What about the Aubrey? What are your current thoughts on the timing of selling that property? Has your expectation around the sale price changed given the recent softness that we've seen in rent prices? Additionally, has there been any thought behind redeploying those proceeds into share repurchases? Would you just accrete that to capital?

Speaker #2: And then additionally, has there been any thought behind redeploying those proceeds into share repurchases, or was it just to create better capital?

Speaker #4: Well, we're going to return 100%, as we've said before, of share buyback from our net income until we get a multiple that we think is appropriate for our ROE and growth.

Damian Kozlowski: Well, we're going to return 100%, as we've said before, of share buyback from our net income until we get a multiple that we think is appropriate for our ROE and growth. Whatever we get in net income, we'll distribute back to shareholders through buybacks. Dominic can give you a good overview update.

Speaker #4: So that whatever we get in net income, we'll distribute back to shareholders through buybacks. But Dominic can give you a good Aubrey update.

Speaker #5: Sure. Good morning. Yeah. So we continue to invest in the property, increase the occupancy rate, as the occupancy rate of available rooms has been 80%, even as we've doubled it.

Dominic C. Canuso: Sure. Good morning. Yeah, we continue to invest in the property, increase the occupancy rate. The occupancy rate of available rooms has been 80%, even as we've doubled it. There are plans to continue to finish the remaining 50 units that need to be upgraded. We're just over 60% occupancy on a total unit basis. We expect to hit near 70% in the very near term. We expect the property to be operating break-even by the end of this quarter. Its impact to our financials should be neutral. We've shifted a bit, given the significant progress and success in the continued occupancy, from just removing it from the balance sheet to actually getting it to a stabilized valuation, which may take a little longer, but ultimately result in better economics for the bank when we exit.

Dominic Canuso: Sure. Good morning. Yeah, we continue to invest in the property, increase the occupancy rate. The occupancy rate of available rooms has been 80%, even as we've doubled it. There are plans to continue to finish the remaining 50 units that need to be upgraded. We're just over 60% occupancy on a total unit basis. We expect to hit near 70% in the very near term. We expect the property to be operating break-even by the end of this quarter. Its impact to our financials should be neutral. We've shifted a bit, given the significant progress and success in the continued occupancy, from just removing it from the balance sheet to actually getting it to a stabilized valuation, which may take a little longer, but ultimately result in better economics for the bank when we exit.

Speaker #5: And there are plans to continue to finish the remaining 50 units that need to be upgraded. We're just over 60% occupancy on a total unit basis.

Speaker #5: And we expect to hit near 70 in the very near term. We expect the property to be operating break-even by the end of this quarter.

Speaker #5: So its impact to our financials should be neutral. And we've shifted a bit given the significant progress and success in the continued occupancy. From just removing it from the balance sheet to actually getting it to a stabilized valuation, which may take a little longer, but ultimately result in better economics for the bank when we exit.

Speaker #2: Okay, that was helpful. But actually, I just want to kind of dig into something that you said, Damian. So I was under the impression the guys implied $50 million of share repurchases per quarter in '26.

Joseph Yanchunis: Okay. That was helpful. I actually just want to kind of dig into something that you said, Damian. I was under the impression the guidance implied $50 million of share repurchases per quarter in 2026, and then you returning 100% of net income or making the buyback 100% of net income in 2027. Would that mean if you sold the Aubrey, does that mean you're going to sell the Aubrey in 2027, kind of based on your answer?

Speaker #2: And then you're returning 100% of net income, or making the buyback 100% of net income in '27. So, would that mean if you sold the Aubrey—and does that mean you're going to sell the Aubrey in 2027?

Speaker #2: Kind of based on your answer?

Speaker #4: We're looking to — I think we'll be totally full if we're going to go to stabilization. That would probably be a first quarter next year event.

Damian Kozlowski: I think we'll be totally full if we're going to go to stabilization. That would probably be a Q1 next year event. There's close to 50 buildings on the property, right? There are 9 left, and we're reconditioning those 9 buildings over 3 phases over the next 9 months. Stabilization probably would happen, occur at the end of next year, where stabilization is in the high 80s, low 90s. Then we would be able at least to get obviously our basis covered. The appraisals are in the low 50s. If we were to monetize, it would be a rounding error to our buyback. We'll get our buyback.

Speaker #4: We have, there's close to 50 buildings on the property, right? And there are nine left. And we're reconditioning those nine buildings over three phases over the next nine months.

Speaker #4: So, if we get to stabilization, it probably would happen or occur at the end of next year, where stabilization is in the high 80s, low 90s.

Speaker #4: And then we would be able, at least, to get obviously our bases covered. But the appraisals are in the low 50s. So, and if we were to monetize, it would be a rounding error to our buyback.

Speaker #4: If we're looking at our buyback, we're a little bit less than net income this year because we did so many buybacks last year. So we're just building a little bit of extra equity.

Speaker #4: Into the end of this year, and then we would return 100% for the foreseeable future, we think, depending on the multiple. So the exit on the Aubrey, if stabilized—if someone doesn't come in and just write a check—but our current intention is to fix those nine buildings, get it up to high 80s, 90, and then monetize it.

Damian Kozlowski: We're a little bit less than net income this year because we did so many buybacks last year that we're just building a little bit of extra equity into the end of this year. We would return 100% for the foreseeable future, we think, depending on the multiple. The exit on the Aubrey, if stabilized, if someone doesn't come in and just write a check. Our current intention is to fix those nine buildings, get it up to high 80s, 90, and then monetize it at this current time, because we've done so much work already.

Speaker #4: At this current time, so because we've done so much work already.

Speaker #2: Right. Okay. Great. And then one last one for me here. How much of your balance sheet are you willing to dedicate to credit-enhanced loans over time?

Joseph Yanchunis: Right. Okay.

Joseph Yanchunis: Right. Okay. Great. One last one from me here. How much of your balance sheet are you willing to dedicate to credit-enhanced loans over time?

Joseph Yanchunis: Great. One last one from me here. How much of your balance sheet are you willing to dedicate to credit-enhanced loans over time?

Speaker #4: All of it.

Speaker #2: All of it. Okay.

Speaker #5: Oh, credit-enhanced or credit-sponsored loans? Which one do you mean?

Damian Kozlowski: All of it.

Speaker #2: The credit-sponsored loans, the one that's—

Joseph Yanchunis: All of it? Okay.

Speaker #4: I thought that's what you meant. So there's two parts: also, loans that we might do that are distributed, or we might take parts of bigger originations—slices of it, right—and keep it on the balance sheet.

Damian Kozlowski: Oh, credit-enhanced or credit-sponsored loans. Which one do you mean?

Joseph Yanchunis: The Credit Sponsorship loans, the one that's.

Damian Kozlowski: I thought that's what he meant. There's two parts, right? There's credit-enhanced loans, and then there's also loans that we might do that are distributed, or we might take parts of bigger origination, slices of it, right? Keep it on the balance sheet. Of the sponsorship loans, it's possible, when we're looking at our pipeline, that'll be a much bigger part of our business. Now, that's over many years. Remember, many of our businesses like SBA, the real estate business, which we have distributed before, are fairly liquid assets. The same is true with their demand loans on the institutional. This is a multi-year thing. It really depends on the programs. Chime is a very unique situation where we're using a lot of balance sheet. That's very unlikely to happen. There'll be some balance sheet used for future programs.

Speaker #4: But of the sponsorship loans, I mean, it's possible when we're looking at our pipeline, that'll be a much bigger part of our business. Now, that's over many years.

Speaker #4: So we're going to, and remember, many of our businesses like SBA, the real estate business—which we have distributed before—are fairly liquid assets.

Speaker #4: The same is true with their demand loans on the institutional side. So this is a multi-year thing, and it really depends on the program. China is a very unique situation where we're using a lot of balance sheet.

Speaker #4: That's very unlikely to happen. There'll be some balance sheet used for future programs. Some might be bigger than others. China is a very special case.

Speaker #4: So this is a very—when we look at our Apex 2030 strategy, originally we were thinking 10%. And then we thought more like 30 or 40 percent of the balance sheet, possibly in the next three to four years.

Damian Kozlowski: Some might be bigger than others. Chime is a very special case. When we look at our APEX 2030 strategy, originally we were thinking 10%, and then we thought more like 30% or 40% of the balance sheet possibly in the next three to four years.

Speaker #2: Alright, that was helpful. Thank you for taking my questions.

Speaker #6: Your next question comes from the line of Manuel Navas at Piper Sandler. Your line is now open.

Joseph Yanchunis: All right. That was helpful. Thank you for taking my questions.

Operator: Your next question comes from the line of Manuel Navas of Piper Sandler. Your line is now open.

Speaker #2: Hey, good morning, guys. This is Grant. I'm for Manuel. I just wanted to ask, could you talk a little bit more about the shift in LLR for fintech loans?

[Analyst] (Piper Sandler): Hey, good morning, guys. This is Grant in for Manuel. I just wanted to ask, could you talk a little bit more about the shift in LLR for fintech loans? It came in at 1.81% this quarter and was 2.84% last quarter. Could you just talk a little bit more about what drove that shift? Did you do more secured credit cards that require less re-

Grant Zirlin: Hey, good morning, guys. This is Grant in for Manuel. I just wanted to ask, could you talk a little bit more about the shift in LLR for fintech loans? It came in at 1.81% this quarter and was 2.84% last quarter. Could you just talk a little bit more about what drove that shift? Did you do more secured credit cards that require less re-

Speaker #2: It was payment at one point at 1% this quarter and was 2.84% last quarter. Could you just talk a little bit more about what drove that shift?

Speaker #2: Did you do more secured credit cards that require less?

Speaker #4: So with the economics, I'll let Dominic handle it. The overall economics—the NIM of the entire program, because it's in different places of the balance sheet and we fund it with non-interest-bearing deposits—is around 3% NIM.

Damian Kozlowski: The economics, I'll let Dominic handle it. The overall economics, the NIM of the entire program, because it's in different places in the balance sheet, and we fund it with non-interest-bearing deposits, is around 3% NIM. For the whole portfolio of products, if you take a look at all the economics, the cost structure on that is not traditional lending, right? You're not supporting it with origination, all the things that you would on a traditional business. It's credit secured. We're getting the whole economics over the portfolio is around that. It would move up over time, potentially with different product sets. I'm only talking about Chime. Dominic, do you want to dig a little deeper?

Speaker #4: For the whole portfolio of products, if you take a look at all the economics, that may and the cost structure on that is not traditional lending, right?

Speaker #4: So you're not supporting it with origination, all the things that you would on a traditional business. And it's credit secured, so we're getting the whole economics over the portfolio around that, which would move up over time, potentially with different product sets.

Speaker #4: And I'm only talking about China. But Dominic, do you want to dig a little deeper?

Speaker #5: Sure. Grant, to your question, the unsecured product did outperform the growth in the quarter, and so there was a mix shift towards that product, which does have a lower loan loss reserve relative to the other products.

Dominic C. Canuso: Sure. Grant, to your question, the secured product did outperform the growth in the quarter, and so there was a mix shift towards that product, which does have a lower loan loss reserve relative to the other products. Across all products, continues to improve, as you can see in those metrics. As the performance of customers along with the growth demonstrates the growth potential of the programs.

Dominic Canuso: Sure. Grant, to your question, the secured product did outperform the growth in the quarter, and so there was a mix shift towards that product, which does have a lower loan loss reserve relative to the other products. Across all products, continues to improve, as you can see in those metrics. As the performance of customers along with the growth demonstrates the growth potential of the programs.

Speaker #5: But across all products, it continues to improve, as you can see in those metrics. As the performance of customers, along with the growth, demonstrates the growth potential of the programs.

Speaker #2: Understood. Thank you. And I also wanted to ask, what is kind of the pace of fintech loan growth from here? I see the goal was $2 billion by year-end.

[Analyst] (Piper Sandler): Understood. Thank you. I also wanted to ask, what is kind of the pace of fintech loan growth from here? I see the goal was $2 billion by year-end. You're now at $1.67 billion, and you were at $1.1 at Q4. How does this adjust other metrics like fee income or NIM?

Grant Zirlin: Understood. Thank you. I also wanted to ask, what is kind of the pace of fintech loan growth from here? I see the goal was $2 billion by year-end. You're now at $1.67 billion, and you were at $1.1 at Q4. How does this adjust other metrics like fee income or NIM?

Speaker #2: You're now at $1.67 billion, and you were at $1.1 billion at Q4. How does this adjust to other metrics like fee income or NIM?

Speaker #5: The success in the quarter, we're very pleased with. And I think it outran our internal expectations. It does not change our full year targets or expectations.

Dominic C. Canuso: The success in the quarter we're very pleased with, and I think outran our internal expectations. It does not change our full year targets or expectations. I think what it does is demonstrate the strength of the balance sheet we'll see in the near term, along with the fees that we anticipate from the churn, particularly in that higher volume portfolio. Overall targets remain the same. I think there was just a little bit of a pull forward of volume that we anticipate, which is very positive, and we're excited to see. It just means that the balance sheet will be a little higher earlier in this year than originally expected.

Dominic Canuso: The success in the quarter we're very pleased with, and I think outran our internal expectations. It does not change our full year targets or expectations. I think what it does is demonstrate the strength of the balance sheet we'll see in the near term, along with the fees that we anticipate from the churn, particularly in that higher volume portfolio. Overall targets remain the same. I think there was just a little bit of a pull forward of volume that we anticipate, which is very positive, and we're excited to see. It just means that the balance sheet will be a little higher earlier in this year than originally expected.

Speaker #5: I think what it does is demonstrate the strength of the balance sheet. We'll see in the near term, along with the fees that we anticipate from the churn, particularly in that higher-volume portfolio.

Speaker #5: So overall targets remain the same. I think there was just a little bit of a pull forward of volume that we anticipate, which is very positive, and we're excited to see.

Speaker #5: So it just means that the balance sheet will be a little higher earlier in this year than originally expected.

Speaker #2: All right. Thank you. That's it for me.

Speaker #6: Your next question comes from the line of BIM, Twitter, of KBW. Your line is now open.

[Analyst] (Piper Sandler): All right. Thank you. That's it from me.

Grant Zirlin: All right. Thank you. That's it from me.

Operator: Your next question comes from the line of Tim Switzer of KBW. Your line is now open.

Speaker #2: Hey, good morning. Thanks for taking my questions.

Speaker #4: Good morning, Tim.

Speaker #2: So, Damian, you mentioned in your opening comments that the new cash program has launched, and will ramp up over the course of the year. And it looks like we saw some acceleration in GDV.

Tim Switzer: Hey, good morning. Thanks for taking my questions.

Damian Kozlowski: Good morning, Tim.

Tim Switzer: Damian, you mentioned in your opening comments that the new cash program has launched and will ramp up over the course of the year. It looks like we saw some acceleration in GDV. Was there any contribution at all this quarter?

Speaker #2: Was there any contribution at all this quarter?

Speaker #4: No, very little.

Speaker #5: No, so very little, right? So our partners are very—they're meticulous when they launch these programs, and so are we. So we go through a long testing phase.

Damian Kozlowski: No, very little. No. Very little, right? Our partners are very meticulous when they launch these programs, and so are we. We go through a long testing phase, and then you start. We're in the full, I would say, turn the dial stage where everything is set. We're watching. You have incremental kind of gating issues. We've already passed the first gate, and we're ready to start turning up the dial. A lot of work has been done. Like I said, by the end of the year, it should be fairly meaningful to our financials. It's all predicated on the timelines of that gating. It's going very well so far, but I think it's going to be good. You'll see that dial turned up through 2026 and then especially through the first part of 2027.

Speaker #5: And then you start—we're in the full, I would say, 'turn the dial' stage, where everything is set. We're watching. You have incremental, kind of gating, issues.

Speaker #5: So we've already passed the first gate, and we're ready to start turning up the dial. So a lot of work has been done. Like I said, by the end of the year, it should be fairly meaningful to our financials. It's all predicated on the timelines, right, of that gating.

Speaker #5: It's going very well so far, but I think it's going to be good. So you'll see that dial turned up through '26 and then especially through the first part of '27.

Speaker #5: So everything's going well, and I think all of us, our partner, are all pleased with the implementation.

Damian Kozlowski: Everything's going well and I think all of us, our partners, are all pleased with the implementation.

Speaker #2: Awesome. That's great to hear. So it sounds like the real acceleration, like an inflection point, kind of occurs in the beginning of '27.

Speaker #5: Well, it'll ramp up this year. It'll start being meaningful. When we talk about our own forecast with our programs, we see a bump in the fourth quarter.

Tim Switzer: Awesome. That's great to hear. It sounds like the real acceleration, like an inflection point kind of occurs in the beginning of 2027.

Damian Kozlowski: Well, it'll ramp up this year. It'll start being meaningful. When we talk about our own forecast with our programs, we see a bump in Q4. That's part of the bump, right? It's not embedded finance like we were saying before, but it's definitely the Chime lending, it's definitely Cash App, other programs that we'll announce other lending programs. We'll also announce other banking as a service programs, over the course of the year. All those things will start meaningfully contributing, by the end of this year. Then 2027, there will be multiple things ramping up together, which will really lead us into that 2027 guidance that we have.

Speaker #5: That's part of the bump, right? It's not embedded finance like we were saying before, but it is—it's definitely the Chime lending. It's definitely Cash App.

Speaker #5: Other programs that we will announce—other lending programs—will also announce other Banking as a Service programs over the course of the year. And all those things will start meaningfully contributing by the end of this year, but then in '27, there will be multiple things ramping up together, which will really lead us into that '27 guidance that we have.

Speaker #2: Okay, nice. And so you talked about this earlier with Grant's question on the 3% NIM, but I'm not sure if that was just the secured card or all the fintech loans.

Tim Switzer: Okay, nice. You talked about this earlier with Grant's question on the 3% NIM, but I'm not sure if that was just the secured card or all the fintech loans, but could you kind of help us with the economic one?

Speaker #2: But could you kind of help us understand the economics?

Speaker #5: Yeah, the reason I said that is because I just wanted to give that there's a lot of confusion, because we don't break it out separately and it's in total economics, right?

Damian Kozlowski: Yeah, the reason I said that is because there's a lot of confusion because we don't break it out separately and it's in total economics, right? We're funding it with non-interest bearing deposits, right? There's multiple different products. There's 4 and it's growing. Different products. If you look at the entire economics of it today through The Bancorp, it's around 3% NIM for us because it's obviously being funded at 0.

Speaker #5: So we're funding it, right, with non-interest-bearing deposits, right? There's multiple different products. There's four, and it's growing—different products. But if you look at the entire economics of it today to the Bancorp, right, it's around a 3% NIM for us, right, because it's obviously being funded at zero.

Speaker #2: Yeah, is it a secured card or all of the fintech loans?

Speaker #5: That's everything together. We don't give independent economics, but it's a blended economics—that's about what it is, right? That potentially will grow over time depending on the product mix.

Tim Switzer: Is that just the secured card or all of the fintech loans?

Damian Kozlowski: That's everything together. We don't give independent economics, but it's a blended economics. That's about what it is. That potentially will grow over time, depending on the product mix. I think it's incredibly synergistic for both us and our partner. I think it works for us, for both of us. The programs have grown. Obviously, it's been a great source of revenue, but also of relationship deepening for Chime, and we're trying to support their initiatives by using our balance sheet. Now once again, that's a very unique relationship. I'm not saying that we will have 10 like we do with Chime. That's very unique, where we have a very deep relationship with them obviously for the issuance of their cards and new products and now their lending products. We look at the entire economics of the relationship.

Speaker #5: And it's a very, I think it's incredibly synergistic for both us and our partner. I think it works for both of us. The programs have grown, obviously.

Speaker #5: It's been a great source of a great source for revenue, but also of relationship deepening for Chime and we're trying to support their initiatives as by using our by using our balance sheet.

Speaker #5: Now, that's, once again, that's a very unique relationship. I'm not saying that we will have ten like we do with Chime. That's very unique, where we have a very deep relationship with them.

Speaker #5: Obviously, for the issuance of their cards and new products and now their lending products. So, we look at the entire economics of the relationship. That 3% doesn't include, obviously, all the interchange.

Speaker #5: Our part of the interchange that Chime originates, so on the secured card—so, not on secured card—that would be in the, if you look at all the products, the lending products that we... Yeah, we're talking about all products, right?

Damian Kozlowski: That 3% doesn't include, obviously, all the interchange, our part of the interchange that Chime originates.

Tim Switzer: On the secured card.

Speaker #5: So any of their products, whether there's interchange involved, we get a portion of that. Plus, obviously, they have deposits that are sitting in the bank that are in excess of the non-interest-bearing deposits.

Damian Kozlowski: No, not on secured card. If you look at all the products, we're talking about all products, right? Any of their products where there's interchange involved, we get a portion of that. Obviously, they have deposits that are sitting in the bank that are in excess of the non-interest-bearing deposits. There's some of their savings deposits. Some of those are off-balance-sheet, I would say. There's the lending part where if you add all the economics together, it's around 3%, right? But it's secured, remember, it's a credit enhancement, right? Separately, there's a whole stream of revenue, obviously, that appears in fees that's only linked to interchange. The third part of economics, there's other deposits that fund the bank, excess deposits that aren't lent out, that provide deposits to the bank too.

Speaker #5: There's some of their savings deposits; some of those are off-balance sheet, I would say. There's the lending part where, if you add all the economics together, it's around 3%, right?

Speaker #5: But it also has its secured. Remember, it's credit enhancement, right? Then separately, there's a whole stream of revenue, obviously, that appears in fees that's only linked to interchange.

Speaker #5: And then the third part of economics, there's other deposits that fund the bank, excess deposits that aren't lent out that provide deposits to the bank too.

Speaker #5: So, it's such a broad, deep relationship that there are multiple revenue streams from the Chime relationship. Lending is just one of them.

Damian Kozlowski: It's such a broad, deep relationship that there's multiple revenue streams from the Chime relationship. Lending is just one of them.

Speaker #2: Yeah, okay, I get that. And I'm getting a lot of questions about the profitability on these loans, because if we take the numbers that are, I guess, disclosed, then we can directly tie them to those loans.

Tim Switzer: Yeah. Okay. I get that now. I'm getting a lot of questions about kind of the profitability on these loans, because if we take the numbers that are, I guess, disclosed, and we can directly tie to those loans. If I take the fintech fees, the interest income, and then those average balances, it looks like it's an annualized yield of about 2.7%. It's pushing off these non-fintech loans yielding nearly 7%. I know, obviously you don't have credit risk. It's not a traditional loan where it costs as much to originate. Maybe it's just the broader parts of that relationship with Chime, because I know all of this ties in together, like you mentioned. But.

Speaker #2: If I take the fintech fees and the interest income, and then those average balances, it looks like it's an annualized yield of about 2.7%.

Speaker #2: And it's pushing off these non-fintech loans, yielding nearly 7%. And I know, obviously, on credit risk, it's not a traditional loan where it costs as much to originate.

Speaker #2: Where are the—and maybe it's just the broader parts of that relationship with Chime, because I know all of this ties in together, like you mentioned.

Speaker #2: But.

Speaker #5: Well, you're not that far off, right? So that's 2.7; we're saying it's around 3 today, right, with the mix currently. Right?

Damian Kozlowski: Well, you're not that far off, right? So that's 2.7. We're saying it's around 3 today with the mix currently. The cost structure is radically different. It's only a fraction of traditional, right? You're getting a 3% NIM, and that once again, is separate from the other two revenue streams. You're getting a 3% NIM, right? It's a fraction of the cost of traditional lending, and it has no risk of loss.

Speaker #5: But the cost structure is radically different. It's only a fraction of traditional, right? So you're getting a 3% NIM. And this, once again, is separate from the other two revenue streams.

Speaker #5: You're getting a 3% NIM, right? But it's a fraction of the cost of traditional lending, and it has no risk of loss. So think about that, right?

Speaker #5: So if you—kind of—that's like almost a—it's almost a bond, right? You could think about a 3% short-term bond that's yielding 3%.

Tim Switzer: Yeah.

Damian Kozlowski: Think about that, right?

Tim Switzer: Yeah.

Damian Kozlowski: That's like almost a bond, right? You could think about a short-term bond that's yielding 3%. Then you have all these other revenue streams that are coming off that, including increased spend. If you think about it, we're lending money out to people that wouldn't have used it otherwise, and that creates interchange. Right? The velocity there is extremely quick. Right? We're talking about billions potentially every month that are going through those products, creating fees for Chime, obviously, but also creating economics for us. It's creating additional GDV spend.

Speaker #5: And then you have all these other revenue streams that are coming off that, including increased spend. So, if you think about it, we're lending money out to people that wouldn't have used it otherwise, and that creates interchange.

Speaker #5: Right? And the velocity there is extremely quick. Right? So we're talking about billions, potentially every month, that are going through those products, creating fees for Chime, obviously, but also creating economics for us.

Speaker #5: It's creating additional GDV spend.

Speaker #2: Yeah. That is.

Speaker #5: And this is Dominic. Just to add, I think the most important part here is the fact that each partner has unique expectations and unique designs.

Tim Switzer: Yeah. That answers my question.

Dominic C. Canuso: Ken, this is Dominic C. Canuso. Just to add, I think the most important part here is the fact that each partner has unique expectations and unique designs, and given the ability to generate deposits, generate transaction fees, whether it's debit or credit, parking loans on the balance sheet, and potentially off balance sheet in the future for loans, off balance sheet deposits that are excess, or funding other programs with deposits. We believe the economics to the partner are where they need to be for them to invest and grow in their programs, and for us to see the returns on a total ROA and ROE basis that are accretive to where we are today, which is why we expect and intend to continue to shift the balance sheet towards these products.

Dominic Canuso: Ken, this is Dominic C. Canuso. Just to add, I think the most important part here is the fact that each partner has unique expectations and unique designs, and given the ability to generate deposits, generate transaction fees, whether it's debit or credit, parking loans on the balance sheet, and potentially off balance sheet in the future for loans, off balance sheet deposits that are excess, or funding other programs with deposits. We believe the economics to the partner are where they need to be for them to invest and grow in their programs, and for us to see the returns on a total ROA and ROE basis that are accretive to where we are today, which is why we expect and intend to continue to shift the balance sheet towards these products.

Speaker #5: And given the ability to generate deposits, generate transaction fees—whether it's debit or credit—parking loans on the balance sheet, and potentially off-balance sheet in the future for loans, off-balance sheeting deposits that are excess or funding other programs with deposits, we believe the economics to the partner are where they need to be for them to invest and grow in their programs.

Speaker #5: And for us to see the returns on a total ROA and ROE basis that are accretive to where we are today, which is why we expect and intend to continue to shift the balance sheet towards these products.

Speaker #2: Got it. All that answers my question very clearly, thank you. And in terms of the velocity, can you maybe let us know what was the volume on the loans this quarter, or how long are you holding these on the balance sheet on average?

Tim Switzer: Got it. All of that answers my question very clearly. Thank you. In terms of the velocity, can you maybe let us know what was the volume on the loans this quarter? How long are you holding these on the balance sheet on average? How might that change in the future, whether you guys change your strategy or these two upcoming Credit Sponsorship programs sound like they might be shorter duration. If you plan to transfer more securitizations, anything like that would be really helpful.

Speaker #2: And then, how might that change in the future, whether you guys change your strategy, or these two upcoming credit sponsorship programs—sounds like they might be shorter duration?

Speaker #2: If you plan to transfer more, or securitizations, anything like that, it would be really helpful.

Speaker #5: It's hard to give you clarity on that because we haven't announced. There's a bunch of different use cases, from wage access to longer-term installment loans.

Damian Kozlowski: It's hard to give you clarity on that because we haven't announced. There's a bunch of different use cases from wage access to longer-term installment loans. We intend to do all those things, right? We intend to provide some on-balance sheet, probably not as much as our current relationship with Chime to other partners, where we intend to securitize a lot of it, so you'll get incredibly high velocity, and you'll hold those loans from 3 to 30 days probably, at the most. Usually it's only a few days. They'll be purchased back by the fintech partner and then securitized. There is definitely a situation where we'll be holding pieces of loans at a much higher yield. Right? Loans that we like, or if it's important to the product for us to hold, excuse me, partner to hold the strip, we will.

Speaker #5: And we intend to do all those things, right? So we tend to provide some on-balance sheet, probably not as much as our current relationship with Chime, to other partners.

Speaker #5: We intend to securitize a lot of it. So you'll get incredibly high velocity, and you'll hold those loans from 3 to 30 days, probably.

Speaker #5: At the most, usually it's only a few days. So, they’ll be purchased back by the fintech partner and then securitized. And then there is definitely a situation where we'll be holding pieces of loans at a much higher yield.

Speaker #5: Right? So, loans that we like or, if it's important to the product for us to hold—excuse me, partner to hold—a strip, we will.

Speaker #5: But those loans will be very, very high. So if you look at the NIM today of the Bancorp, where it is today, right? We're around 4% if you add back what Dominic was saying—the basis points and the fees that potentially could be viewed as interest, right?

Damian Kozlowski: Those loans will be very, very high. If you look at the NIM today of the bank or where it is today, right? We're around 4% if you add back what Dominic was saying, the basis points and the fees that potentially could be viewed as interest, right? It's not that different. We had some deterioration in our NIM, but if you add back the increased fees from this quarter versus last year, it's 12, 13 basis points different in NIM. Your net interest margin should go up over time, right? If you add back all those fees depending on the programs. Because you're going to obviously have pressure on deposits going down, right, because of our liquidity. We'll take more high-rate deposits off the balance sheet.

Speaker #5: So, it's not that different. We had some deterioration in our NIM, but if you add back the increased fees from this quarter versus last year, it's 12, 13 basis points different in NIM.

Speaker #5: Your NIM is going to—your net interest margin should go up over time, right? If you add back all those fees, depending on the programs.

Speaker #5: Because you're going to obviously have pressure on deposits going down, right? Because of our liquidity. So we'll take more high-rate deposits off the balance sheet.

Speaker #5: And then if, when you look at these programs, the Chime situation is the lowest, probably the lowest NIM situation you would have because of all the synergistic revenue.

Damian Kozlowski: If when you look at these programs, the Chime situation is the lowest, probably the lowest NIM situation you would have because all the synergistic revenue. That over time, once again, adding back potential fees from the line that we have, that third line in our financials around fintech loan fees. Plus, obviously the interest is, if there's any interest on those loans is already in our NIM calculation. That after this initial stage should start moving up. Right? In many of these cases, these are velocity of loans. You'll be getting fees. You'll get effective yields, very short-term loans, very quick. Many of them will be backstopped or securitized. You'll have a conversion of the balance sheet from traditional, non-traditional lending. There'll be less of a, potentially of a traditional bank reserve. These are the structure of these loans.

Speaker #5: So that over time, once again, adding back potential fees from the line that we have that third line in our financials around fintech loan fees, plus obviously the interest is a if there's any interest on those loans, it's already in our NIM calculation.

Speaker #5: That after this initial stage should start moving up, right? And then, in many of these cases, these are the velocity of loans. You'll be getting fees.

Speaker #5: And so you'll get effective yields—very short-term loans, very quick. Many of them will be backstopped or securitized. So you'll have a conversion of the balance sheet from traditional, non-traditional lending.

Speaker #5: There'll be less of a potential for a traditional bank reserve. These are the structure of these loans. The velocity will go up very high.

Speaker #5: And if you add back the fees on these loans, the NIM—the effective NIM on these loans over time—will go up. Now, in the near term, they'll go down for the reasons that we've stated on the Chime program, but that should turn around as we add new partners.

Damian Kozlowski: The velocity will go up very high. If you add back the fees on these loans, the NIM, the effective NIM on these loans over time will go up. Now, in the near term, they'll go down for the reasons that we've stated on the Chime program, but that should turn around as we add new partners.

Speaker #2: Great. Yeah, I mean, that's really helpful. I mean, regardless of where the reported NIM goes, Apex 2030, ROA 4%, ROTC of 40%, bottom line is moving up.

Tim Switzer: Great. Yeah. I mean, that's really helpful. I mean, regardless of where the reported NIM goes, APEX 2030, ROA 4%, ROTC at 40, bottom line is moving up.

Speaker #5: Yeah. I mean, just look at this quarter. We had a 35% ROE. Look at our ROA, right? And if you consider the fact that we're going to be repatriating all our equity, or equity stays the same.

Damian Kozlowski: Yeah, just look at this quarter. We had a 35% ROE. Look at our ROA, right? If you consider that the fact that we're going to repatriating all our equity, our equity stays the same. Any increase, as our net income moves up, obviously our ROE, ROA will continue to move up, and our efficiency ratio is likely to move down.

Speaker #5: So, as our net income moves up, obviously our ROE and ROA will continue to move up, and our efficiency ratio is likely to move down.

Speaker #2: Yeah, that's great. Okay. Another area that has become a bigger and bigger opportunity on the fintech side of things for you guys is those off-balance sheet deposits, which I think have gotten to $1.3 billion right now.

Tim Switzer: Yeah, that's great. Okay. Another area that has become a bigger and bigger opportunity in the fintech side of things for you guys is those off-balance sheet deposits, which I think have gotten to $1.3 billion right now. Your press release mentioned $900,000 earned on deposit sweeps in other income. Is that where all the revenue from your off-balance sheet deposits are reported? Just want to make sure I'm kind of-

Speaker #2: Your press release mentioned $900,000 earned on deposit suites in other income. Is that where all the revenue from your off-balance sheet deposits is reported?

Speaker #2: Just want to make sure I'm kind of.

Speaker #5: I believe.

Speaker #2: Capturing all the revenue.

Speaker #5: Yes, Dominic can answer that, but yes.

Speaker #3: That's correct. That's where it's located.

Speaker #2: Okay.

Damian Kozlowski: I believe.

Tim Switzer: capturing all the revenue.

Speaker #3: Now, as Damian mentioned earlier on the call, first quarter is seasonally high just because of tax season. We do expect it to contribute but it's probably a secondary or tertiary benefit from all the strategies we just talked about.

Damian Kozlowski: Yes. Dominic can answer that, but yes.

Dominic C. Canuso: That's correct. That's where it's located. Now, as Damian mentioned earlier on the call, the Q1 is seasonally high just because of tax season. We do expect it to contribute, but it's probably a secondary or tertiary benefit from all the strategies we just talked about.

Dominic Canuso: That's correct. That's where it's located. Now, as Damian mentioned earlier on the call, the Q1 is seasonally high just because of tax season. We do expect it to contribute, but it's probably a secondary or tertiary benefit from all the strategies we just talked about.

Speaker #2: Okay, yep, makes sense. I think on the last sentence on this call, I got a few more, if that's okay. On the Rebel book, good to see another quarter of improvement in the credit metrics there.

Tim Switzer: Okay. Yep, makes sense. I think I'm the last analyst on this call, so I got a few more, if that's okay. On the REBL book, good to see another quarter of improvement in the credit metrics there. Could you give us an update on how the maturities and refinancings within the REBL book are going right now? One thing I'm looking at is how the percentage of REBL balances maturing over the next 12 months declined meaningfully for the first time in a while. In Q4, it's now less than 50%. Do you have that updated number for Q1? Because it kind of seems like that could indicate you're seeing less one-year extensions and more actual payoffs.

Speaker #2: Could you give us an update on how the maturities and refinancing within the Rebel book are going right now? And one thing I'm looking at is how the percentage of Rebel balances maturing over the next 12 months declined meaningfully for the first time in a while in Q4.

Speaker #2: It's now less than 50%. Do you have that updated number for Q1? Because it kind of seems like that could indicate you're seeing fewer one-year extensions and more actual payoffs.

Speaker #5: Yeah, so remember, we have great visibility. These are repositionings, mostly of workforce housing. And they require work, so there are constant draws, right? We have reserves and everything.

Damian Kozlowski: Yeah. Remember, we have great visibility. These are repositioning mostly of workforce housing, and they require work. There's constant draws, right? We have reserves and everything. The reason that we had that bubble when we did was that because the origination period where we got back into the business, there were a lot of loans done at that time, right? We've maintained a portfolio, but that large bump in origination during that period that resulted in classified assets has worked through the system, right? Those were the buildings that were having issues due to the supply shock, interest rate increases, sharp interest rate increases. That bubble has gone through the system. That's dropping because we just haven't had as many originations, right?

Speaker #5: So, we don't—the reason that we had that bubble when we did was that, because the origination period where we got back into the business, there were a lot of loans done at that time.

Speaker #5: Right? We haven't. We've maintained the portfolio, but that bump— that large bump in origination during that period that resulted in classified assets— has worked through the system.

Speaker #5: Right? So those were the buildings that were having issues due to the supply shock, interest rate increases, sharp interest rate increases. So that bubble has gone through the system.

Speaker #5: So that's dropping because we just haven't had as many originations, right? So, and if a project is completed, right, and it's on plan and everything, sometimes sponsors will want a year or two.

Damian Kozlowski: If a project is completed, right, and it's on plan and everything, sometimes sponsors will want a year or two, and that's built into our contracts, two one-year extensions. People take advantage of that sometimes. It's part of both of our agreements. They're stabilized loans at that point. They may want to do an exit, and they don't exactly want to do it at this interest rate. Yeah, the reason that was so high was because of that bubble. That bubble is, I don't know the exact, maybe Dominic has that at his fingertips. Maybe we can publish it in the future. That is slowly working down quickly.

Speaker #5: And that's built into our contracts—two one-year extensions. And people take advantage of that sometimes. It's part of both of our agreements. And they're stabilized loans at that point.

Speaker #5: They may want to do an exit, and they're not exactly wanting to do it at this interest rate. So, yeah, the reason that was so high was because of that bubble.

Speaker #5: And that bubble is—I don't know the exact, maybe Dominic has it on his fingertips. Maybe we can publish it in the future. But that is slowly working down, quickly.

Speaker #2: Okay. All right. That's helpful. And, kind of related to that, it looks like the average yield on the Rebel book has gone down from about 8.5% to 7.6% in the last two quarters.

Tim Switzer: Okay. All right. That's helpful. Kind of related to that, it looks like the average yield on the REBL book has gone down from about 8.5% to 7.6% in the last two quarters. It seems like a pretty quick decline. Could you talk about the drivers there in terms of maybe what new loans are coming on at versus rolling off, and how much of that decline could be due to some of these extensions or modifications?

Speaker #2: It seems like a pretty quick decline. Could you talk about the drivers there in terms of maybe what new loans are coming on at versus rolling off, and how much of that decline could be due to some of these extensions or modifications?

Speaker #5: Go ahead, Dominic. Do you want to handle it?

Speaker #2: Sure. Yeah. Well, just as a reminder, a third of that portfolio is variable, so you clearly see a step down with the short-term interest rate environment that we've seen over the past year.

Damian Kozlowski: Go ahead, Dominic. You want to handle it?

Dominic C. Canuso: Sure. Yeah. Well, just as a reminder, a third of that portfolio is variable. You clearly see a step down with the short-term interest rate environment that we've seen over the past year. To the point that you just spoke about, which was that vintaging, that large vintaging roll through. Again, they were on 3-1-1 contracts, many of which came to that second term and were either recapped, refinanced, or sold out. Those recaps and refinances were at lower rates because they were at more stabilized values, previous investments, stronger investors. Those rates, by the quality of the positioning of those loans, brought down the rate combined with the variable rate environment. We do think we're at a good point now, having worked through that large vintage bubble and with the lower rates, that we should see much more stability going forward.

Dominic Canuso: Sure. Yeah. Well, just as a reminder, a third of that portfolio is variable. You clearly see a step down with the short-term interest rate environment that we've seen over the past year. To the point that you just spoke about, which was that vintaging, that large vintaging roll through. Again, they were on 3-1-1 contracts, many of which came to that second term and were either recapped, refinanced, or sold out. Those recaps and refinances were at lower rates because they were at more stabilized values, previous investments, stronger investors. Those rates, by the quality of the positioning of those loans, brought down the rate combined with the variable rate environment. We do think we're at a good point now, having worked through that large vintage bubble and with the lower rates, that we should see much more stability going forward.

Speaker #2: But to the point that you just spoke about, which was that vintaging, that large vintaging roll-through—again, they're on 311 contracts, many of which came to that second term and were either recapped or refinanced or sold out.

Speaker #2: Those recaps and refinances were at lower rates because they were at more stabilized values, previous investments were stronger. Investors saw those rates; by the quality of the positioning of those loans, it brought down the rate, combined with the variable rate environment.

Speaker #2: We do think we're at a good point now, having worked through that large vintage bubble, and with the lower rates, that we should see much more stability going forward.

Speaker #2: We continue to see loans rolling off in the low eights and being put on in the mid-sixes. So, you'll see that natural portfolio churn, but that's just the interest rate environment we're in—nothing more than that.

Dominic C. Canuso: You'll continue to see loans rolling off in the low 8s and being put on in the mid 6s. You'll see that natural portfolio churn. That's just the interest rate environment we're in, nothing more than that.

Dominic Canuso: You'll continue to see loans rolling off in the low 8s and being put on in the mid 6s. You'll see that natural portfolio churn. That's just the interest rate environment we're in, nothing more than that.

Speaker #2: Okay, all right, that's helpful. And then the last one for me—thanks for taking all these questions. Is there any risk or even opportunity from the proposed executive order on banks being required to obtain citizenship info?

Tim Switzer: Okay. All right. That's helpful. The last one for me. Thanks for taking all these questions. Is there any risk or even opportunity from the proposed executive order on banks being required to obtain citizenship info? It seems like that would be a big lift for a lot of the BaaS banks given the third-party relationships and how small some of these accounts are. On the opportunity side, would your prepaid card products be required to obtain citizenship info as well? Because it seems like it could push a lot of people towards those sort of products.

Speaker #2: It seems like that would be a big lift for a lot of the BAS banks, given the third-party relationships and how small some of these accounts are.

Speaker #2: And on the opportunity side, would your prepaid card products be required to obtain citizenship info as well? Because it seems like it could push a lot of people towards those sort of products.

Speaker #5: Well, that would be a very difficult thing to do, since prepaid cards—every prepaid card—that would be every incentive card. That’d be Cracker Barrel.

Damian Kozlowski: Well, that would be a very difficult thing to do since prepaid cards, every prepaid card, that would be every incentive card. That'd be Cracker Barrel. You know what I mean? That'd be a restaurant card. That would be very difficult. Those deposits on those type of cards, in many cases, are not even insured deposits because you don't know who it is. We do have I think versus many institutions, we have fairly good information in that area if it gets implemented. If it becomes a requirement, everyone will have to do it. Right? I'm sure there'll be an implementation phase. There might be new accounts. All those things aren't clear at this time, so we can't really comment on it.

Speaker #5: You know what I mean? That'd be a restaurant card. That would be very difficult. There are some, and those deposits on those types of cards in many cases are not even insured deposits because you don't know who it is.

Speaker #5: We do have, I think, versus many institutions, we have fairly good information in that area. If it gets implemented, if it becomes a requirement, everyone will have to do it.

Speaker #5: Right? I'm sure there will be an implementation phase. There might be new accounts. All those things aren't clear at this time, so we can't really comment on it.

Speaker #5: But we do collect a lot of depending on the type of account and the use. There is a lot of already information like Social Security numbers and everything from many of our not of our clients, obviously, but of their clients that end up being deposits at our bank.

Damian Kozlowski: We do collect a lot of, depending on the type of account, and the use, there is a lot of already information like Social Security numbers and everything from many of our, not of our clients obviously, but of their clients that end up being deposits at our bank. There is requirements already in place. Right now we don't know how that has to play out, how that actually gets worked through the system. Obviously, the regulators, FinCEN, would be involved, and everyone would have to be involved, and it would have to be implemented over long periods of time.

Speaker #5: So, there are requirements already in place. And right now, we don't know how that has to play out, whether that—how that actually gets worked through the system.

Speaker #5: Obviously, the regulators—everyone—if it would be FinCEN, it wouldn't be everyone; everyone would have to be involved, and it would have to be implemented over long periods of time.

Speaker #2: Yeah, yeah. I mean, there are very little details exactly on how it works. So, appreciate it. Thanks for taking all my questions, guys.

Speaker #5: No problem. Thank you.

Tim Switzer: Yeah. There's very little details exactly on how it works. Appreciate it. Thanks for taking all my questions, guys.

Speaker #3: Thank you. I would now like to hand the call back to Damian Kozlowski for closing remarks.

Damian Kozlowski: No problem. Thank you.

Speaker #5: Thank you for joining us today, everyone. Operator, you may disconnect the call.

Andres Viroslav: Thank you. I would now like to hand the call back to Damian Kozlowski for closing remarks.

Operator: Thank you. I would now like to hand the call back to Damian Kozlowski for closing remarks.

Damian Kozlowski: Thank you for joining us today, everyone. Operator, you may disconnect the call.

Andres Viroslav: Thank you for attending today's call. You may now disconnect. Goodbye.

Operator: Thank you for attending today's call. You may now disconnect. Goodbye.

Q1 2026 The Bancorp Inc Earnings Call

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