Bancorp Q4 2024 Earnings Report

Bancorp EPS Results

• Actual EPS: $1.15
• Consensus EPS: $1.13
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Bancorp Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $96.76 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Bancorp Announcement Details

• Quarter: Q4 2024
• Date: 1/30/2025
• Time: After Market Closes
• Conference Call Date: Friday, January 31, 2025
• Conference Call Time: 8:00AM ET

Bancorp (NASDAQ:TBBK) operates as the bank holding company for The Bancorp Bank, National Association that provides banking products and services in the United States. It offers a range of deposit products and services, including checking, savings, time, money market, and commercial accounts; overdrafts; and certificates of deposit. The company also provides securities-backed lines of credit and insurance policy cash value-backed lines of credit; investor advisor financing; lease financing for commercial and government vehicle fleets, including trucks and other special purpose vehicles; commercial real estate bridge loans; and small business administration loans. In addition, it offers bill and other payment services; debit and prepaid card issuing services; card and bill payment, and automated clearing house processing services; and internet banking services. The company was incorporated in 1999 and is headquartered in Wilmington, Delaware.

Bancorp Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to the Bancorp Inc. Q4 and Fiscal twenty twenty four Earnings Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Friday, Jan.

[Operator]

31, 2025. I would now like to introduce your speaker for today, Andres Viraslav. Please go ahead.

[Andres Viroslav, Director of Investor Relations at The Bancorp]

Thank you, operator. Good morning, and thank you for joining us today for The Bancorp's fourth quarter and fiscal twenty twenty four financial results conference call. On the call with me today are Damien Kozlowski, Chief Executive Officer and Paul Frenkel, our Chief Financial Officer. This morning's call is being webcast on our website at www.thebancorp.com. There will be a replay of the call available via webcast on our website beginning at approximately twelve p.

[Andres Viroslav, Director of Investor Relations at The Bancorp]

M. Eastern Time today. The dial in for the replay is 80264 with a passcode of eighteen thousand seven hundred and thirty nine. Before I turn the call over to Damian, I would like to remind everyone that our comments and responses to questions reflects management's view as of today, Jan. 31, 2025.

[Andres Viroslav, Director of Investor Relations at The Bancorp]

Yesterday, we issued our earnings release and updated investor presentation. Both are available on our Investor Relations website. 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 mentioned today. These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission.

[Andres Viroslav, Director of Investor Relations at The Bancorp]

In addition, we will be referring to certain non GAAP financial measures during this call. Additional details and reconciliations of GAAP to adjusted non GAAP financial measures are in the earnings release and the investor presentation. Please note that the Bancorp undertakes no obligation to publicly release 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 would like to turn the call over to the Bancorp's Chief Executive Officer, Damian Kozlowski. Damian?

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Thank you, Andres. Good morning, everyone. The Bancorp earned 1.15 a share for the and $4,.29 for the full year 2024. The year over year EPS increase for the quarter was 4123% for the full year. EPS was driven by higher total revenue year over year of 8%, excluding $1,960,000,0.0 of consumer fintech noninterest income correlated with related provision for credit losses.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

The increase in EPS was led by the growth of total fintech fees, 16% year over year growth in year end deposits and a significant reduction of shares year over year of approximately 10% due to an enhanced '24 buyback of $2.50,000,000 dollars Fintech Solutions continues to build volumes and is the major driver of profitability growth from both fees and lower cost stable deposits. For full year '24, grew 15% over the prior year. However, the saw significant acceleration with GDP growing 19% year over year. Total fee growth was 18% for the year from all fintech activities, which ballooned to 29% in the year over year driven by credit sponsorship and 78% growth in ACH card and other payment processing fees, which includes rapid funds transfers. The Fintech Solutions Group continues to add new partnerships and expand existing programs.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

For example, credit sponsorship continues to grow significantly, and we anticipate balances to approach $1,000,000,000 by the with the addition of new partnerships. Credit sponsorship fee grew 91% quarter over quarter with quarter end loan balances growing from $2.80,000,000 dollars to $4.54,000,000 dollars or 62%. Year end substandard loans in our rebel portfolio declined 14% compared to September '4, due to a loan portfolio sale, and the percentage further declined on January '2 with a loan repayment. We expect this trend to continue with little to no loss. We continue to maintain significant coverage on these loans with low leverage and expect further progress by the end of the Lastly, led by the broad based and increasing growth in our FinTech Solutions Group, we are affirming '25 guidance of $5,.25 a share.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

The guidance does not include $150,000,000 of share buybacks for $25,000,000 or $3,750,000,0.0 per quarter. Buybacks have been reduced $100,000,000 in 2025 from $20.24,000,000 dollars to facilitate the repayment of $96,000,000 of senior secured debt. Depending on prevailing rates, we may reissue $100,000,000 or more of senior secured debt. Those proceeds would likely be used for further buybacks of shares. I now turn the call over to my colleague and CFO, Paul Frankel.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Paul?

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

Thank you, Damian. Based upon applicable accounting guidance, lending agreements related to consumer fintech loans had certain provisions accounted for as freestanding credit enhancements, which resulted in the company recording a $1,960,000,0.0 provision for credit losses and $1,960,000,0.0 in non interest income resulting in no impact to net income. In the the company recognized a $1,000,000 recovery from the trust preferred security, which was written off in the 01/00 of the primary strategies of the company is to create a meaningful footprint in credit sponsorship lending after having begun to generate balances in the We are proceeding prudently in our fintech credit strategies and currently are generating balances with lower potential loss exposure. We believe we will be able to originate loans with higher yields and or fees in the future. The majority of the increase in year end loan balances compared to Sept.

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

30, 2024 was comprised of consumer fintech loans. The net interest margin of 4.55% compared to 4.78% for and reflected 1300000.0 of prior period interest reversal on rebel loans included in an $82,000,000 year end rebel loan sale. Average FinTech Solution Group deposits for the quarter increased 16% to $6,990,000,000,.00 from $6,000,000,000 in Excluding the consumer fintech accounting offsets noted previously, the provision for credit losses on loans was $2,000,000 in compared to $410,000,0.0 in '20 '20 03/00 reflected $1,000,000 resulting from growth in loan principal between the against which CECL loss and qualitative percentages are applied. An additional $1,000,000 resulted from increasing the CECL economic factor on rate real estate bridge loans. The balance of the provision in primarily reflected the impact of leasing related charges, approximately $900,000 of which were in long haul and local trucking.

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

The largest component of the provision also reflected the impact of the trucking and related categories. Total principal exposure in those trucking categories was approximately $32,000,000 at Dec. 31, 2024. While the macroeconomic environment has challenged the multifamily bridge space, the stability of the Bancorp's rehabilitation bridge loan portfolio is evidenced by the estimated values of the underlying collateral. The $210,000,000,0.0 apartment bridge lending portfolio has a weighted average origination date as is LTV of 70% based on thirty third party appraisals.

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

Further, the weighted average origination date as stabilized LTV, which measures the estimated value of the apartments after the rehabilitation is complete, may provide even greater protection from losses. Significantly, outstanding modified rebel loans have respective as is and as stabilized weighted average LTVs of 7363%. Excluding the consumer fintech accounting offsets noted previously, non interest income for was $3,470,000,0.0 which was 28% higher than Prepaid debit card ACH and other payment fees increased 16% accounting for the majority of the increase. Those increases reflected both higher rapid funds transfer income and higher prepaid and debit program sponsorship income driven by both new client relationships achieving scale and the continued organic growth of long standing client relationships. The increase in non interest income also reflected consumer fintech fees of $3,000,000 reflecting the company's entry into credit sponsorship.

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

As previously noted, we believe we will be able to originate loans with higher yields and or fees in the future. Non interest expense for was $5,180,000,0.0 which was 14% higher than The increase included a 22% increase in salaries and benefits, which reflected higher staffing costs related to payments related to financial crime, IT and incentive compensation expense, including stock compensation expense. In summary, the Bancorp's balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches and related underwriting. Those loan niches have contributed to increased earnings levels even during periods in which markets have experienced various economic stresses. Real estate bridge lending is comprised of workforce housing, which we consider to be working class apartments at more affordable rental rates in selected states.

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

We believe that our underwriting requirements provide significant protection against loss as supported by LTV ratios based on third party appraisals. Further, SBLOC and IBLOC loans are respectively collateralized by marketable securities and the cash value of life insurance, while SBA loans are either SBA 7A loans that come with significant government guarantees or five zero four loans that are made at 50% to 60 LTVs. Additional details regarding our loan portfolio are included in the related tables in our press release as are the earnings contributions of our payments businesses, which further enhances our risk profile. The risk profile inherent in the company's loan portfolio's payments funding sources and earnings levels may present opportunities to further increase shareholder value, while still prudently maintaining capital levels. Such opportunities include stock repurchases, which are planned in 2025.

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

I will now turn the call back to Damian.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Thank you, Paul. Operator, please open the line for questions.

[Operator]

Thank you. Your first question comes from the line of Frank Schiraldi with Piper Sandler. Please go ahead.

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

Good morning. Just on the acceleration of GDV, Damian, in the quarter, curious if you can what you're seeing so far in thoughts on 2025 in terms of year over year growth in GDP? And then how do we think about pickup in terms of the fee income piece? I know obviously the consumer credit stuff is driving some decent fee income growth. But if I just think about if we just think about the deposit related kind of fees, what is the pickup for a given 15% or 20% GDV growth?

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

Thanks.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Okay. So the first part of it, the GDV has continued to be accelerated. So in Jan. 0, we're still seeing 19%, twenty % GDV growth. So that is that was kind of a liar last year.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

I said we would be above trend on GDV. And we just were a little too late on implementations to get the real kick at the end, but you saw it in the So GDV is very strong. That's number 1. Number 2 is the fee what's happening is that we've worked very hard to expand the product set as you know. Rapid funds, we were an early adapt adopter.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

And now with credit sponsorship, we're expanding the programs with our primary client, but then with new clients. So it's kind of building a layer cake now. So you're getting kind of fees on top of fees from our primary relationship. So where we were in the if you look over the year over year, a lot of that is run rate business. And then you're going to have the additional balances.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

The balances on the credit sponsorship could be over $1,000,000,000 for this year. So you're going to get a fee growth in the at least in the high 20s for if you look at all the fees, right? So if you look at the ACH, the base fees that we have, which are less determinative with GDV because the relationships have expanded so much and have additional fee sources and they're kind of all additive to each other. So if you look at the whole fee structure, it's going to be at least in the high 20s if you include the credit sponsorship piece. And if you take that out, you're still with and our GDP growth now, you're in the high teens if you have the ACH and related fees and the base card fees.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

So it's very strong historically. And we haven't seen this type of growth in GDV and well obviously ever in fee growth, but we haven't seen this type of volume growth since the pandemic with massive government stimulus. So that was 1 time items. Now it's based on diversity of product and also on the new larger programs that we put on our platform.

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

Okay. All right. Great. That's great color. And then just on net interest income on the NIM.

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

Obviously, you had the interest reversal in the quarter, but then you also have these significantly higher consumer balances that seem to be earning more on the fee side than maybe in terms of yield. So I'm just curious if you can talk through, is that kind of the name of the game? Can we continue to see maybe some margin compression and more pickup on fee income? Or what are your thoughts on margin in 2025?

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

So near term, we have as you can see, we have a very strong growth in deposits, which adds obviously to our cash balances. However, what's going to happen in the near term, it's depending on implementation of which programs, lending programs and credit sponsorship primarily because what happens is some of these products are only fee based like for example the MyPay products, right? We do have additional liquidity because they're funded with a demand deposit, But the result for us is all fee based, even though you kind of on an accounting basis, it's a fee. However, that's our payment for that product. In the near term, there might be some NIM erosion even though we're getting more profitable.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

However, that will turn around substantially as new programs that are interest based and not primarily fee based get implemented. And those are on our platform now with our clients. So you'll see you might see a depression because it's in the credit sponsorship fee line, but then it will reverse and the fees will slow down and then non interest the interest income will

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

increase.

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

Okay.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

But the result is basically the same, it's just in the wrong category, right? You're seeing a fee that is really the payment would be traditionally it's not NIM, but we're calculating the economic benefit of having the program.

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

Sure. No, understood. And then just lastly, I noticed in the footnote in the release you mentioned you had 2 smaller non accruals after the end of I think under just under $10,000,000 I believe that's in the rebel book. Can you just talk about those because I didn't see any increase in delinquency in the quarter? And also just your confidence in criticizedclassified, sounds like you talked about it getting near peak or maybe peaking and obviously you had the loan sales and balances were down.

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

But just wondering your confidence going forward in those have reaching peak level. And do you need or expect to continue to have additional loan sales to kind of offset what otherwise would be inflows into those categories?

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Yes. So we think we're over the peak now, right? So there might be a couple of modifications, a couple of substandard loans, but we can see a significant decrease over the next quarter potentially or 2 quarters. So we have the Aubrey sale, but we have other there may be additional loan sales and we know where we are with we're closely tracking all those loans. And additionally, remember, we had a third party review of the portfolio.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

So we're very confident now, I think, that we're on the other side of the peak and they should we should show real good progress this quarter

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

and going into next quarter.

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

Yes. And on the $10,000,000 it's a developing situation where we think we have an issue with that amount of loans. And as Damian said, we all believe that we've reached the peak and we have the Aubrey sale coming up and we have other things and other loan sales are in fact possible. So it's not going to be a perfect reduce, reduce, reduce.

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

You may have a small loan like the $10,000,000 that might become an issue. But again, even with that as with all the modified loans, we have very strong protection against loss in the LTVs and we don't expect number 1, we don't expect net increases in the sub standards and in those types of loans with issues. They're going down. They should consistently go down. We think they're going to go down in the But in fairness to the presentation, we did disclose that.

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

Okay. Okay. So just on those 2 loans, I mean, at this point, I guess, there's no additional color. They're in non accrual. So I guess, we assume well collateralized, but potentially Yes.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

We really can't. It's a developing thing. We'll fully disclose it when we can. And we think there will be no loss.

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

Okay.

[Frank Schiraldi, Managing Director at Piper Sandler Companies]

Thank you.

[Operator]

Thank you. And your next question comes from the line of Tim Switzer with KBW. Please go ahead.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Hey, good morning. Thank you for taking my question.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Good morning, Tim.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

My first question is on some of the disclosures around the loan agreements with the consumer fintech loans where you're, I guess, being reimbursed for the credit provision. Can you give us some I know you can't go into like specific customers, but can you go into some details broadly about how those contracts are written? And like do you get the collateral if they're not able to cover the losses? And do you provide do they provide the cash for the losses upfront before they occur? Or is it as they occur?

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Any details you can provide on that would be really helpful.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Yes. So we do. We have an offset. So there is it's really backed up by the client on these types of loans that we're currently doing. So this, the way it works, you got to remember when we're working with a client, these large clients, we're holding the entire profitability of the bank at us.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

We get everything first. So it's interchange whatever, right? We also they also post collateral for these loans on additional additionally. So we have the offset which far outweighs the what would be in the loss category would be the interchange for these large programs. That's first.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Plus we have the backstop. Plus we have they post collateral. So it's very, very low. It's nothing 0, but it's as close to 0 that you can on the riskiness of the loans.

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

And as far as your other question on the contracts and how the accounting relates, they're really technical accounting guidance that we're looking at those agreements and we obviously would rather not have like a somewhat of a distortion by showing a big number in a provision and a big number that's equal to that in the non interest income. So we're looking at those technical requirements and we don't anticipate that it'll be an issue going forward if we can make those minor tweaks to the agreement.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Okay. And just to be clear, so the collateral you have on your loans, you've received more than the $1,960,000,0.0 you received. That's just when it gets recognized through the income statement. When exactly do you receive the collateral and like, you know, is it equivalent to like what you put up on the reserve side or is it a little bit higher?

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

You know, like you could really get into the technicalities like you're suggesting with T accounts and when we get the money. The bottom line is Damian had said, in these cases, the bank is fully protected to the extent that it can be like the dollars are really there. So there's really

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

no significant issues.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Yes. Remember, we're holding all the interchange prior. We're a very small part of it. So we kind of dole it out to everybody else.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

That's the first part of it. That is a huge number, right? This is very small compared to that. However, we do also have collateral. But it's a 1 to 1 offset.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

When it goes over a certain amount of time, I'm not going to disclose, but it's a couple of we have an exact day. When that day happens, then that is funded and that offset happens. So if it goes a certain amount of time that loan isn't paid back, remember these are very quick loans, right? So if it isn't paid back then the offset occurs.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Okay. Yes, yes. No, that helps a lot. And so is it fair to say you guys give up the interest income but still receive all the interchange for this arrangement?

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

Not necessarily. Like it varies on different credit products. We price each credit product and each relationship differently. So you really have to, and at this point with the mix, we're not certain really ultimately what the mix is going to be. But as I said in my presentation, ultimately we expect what we'll do other programs with higher yields

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

and more fee income.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Yes. So we have the way we implemented the program was kind of secured. We have a credit builder program, which is secured credit card. We have Spot Me, which is a kind of a fully secured overdraft that and this and MyPay is kind of a free loan, if you remember.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

This is the highest growing 1 so far. Is a free loan to the client. And the only reason that the client pays anything for that loan is because they want it immediately. And that's the source of fees for our partner and for us, right? And with that comes a deposit at 0.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

So the interest income that would have been charged is actually being generated in a fee for rapid advance, right? So but the way we implemented these programs, because we're trying to make sure that we build it in the right way, is to start with those type of programs with a primary client like we did, but then add the interest more complicated products and then expand it to other programs, which is we're in the process. So you'll see those balances like you saw in the rapidly grow and then you'll see rapid product diversification. And so some will be fee based, but in the future it will be very diversified, but there will be a lot more interest income at much higher rates.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Okay. Okay. Got it. And in the future as you continue to diversify your products, do you plan to for the loan agreements to include you being reimbursed for the credit losses or are you going to do any kind of arrangement that makes economic sense for you guys?

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Some will, right? So if they're kind of renting our balance sheet, like in that particular program, it will be fee based. It probably won't have the interest component. So it will be programs like that. But as into the future, there will be programs where, say, they're all they could be much higher interest rates, right?

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

And we would hold many times they'll be securitized within three or thirty days. So that will be very fee based, but with a lot of velocity, right? So it will be small balances, but a lot of loans will be going through the balance sheet, which will generate both spread, but fee income. But then we will also hold a very diversified set in the future of maybe 10 programs, right? Very small strips, there will be small balances, but they could add up to $1,000,000,000 but it would be very diversified.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

We'd get a lot of interest income. In that case, they would not be backed up by the partner. But then those would be extremely profitable because you get much, much higher. It's a small strip. They're very quick terminating loans.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

We hold a small strip and they're very diversified. So those would be that's where we want to go at the end of the day to have a portfolio of multiple programs very small very small because if you think about it, if you have 1000000000 of those over 10 programs, that is immensely profitable because the velocity on those loans are so quick that you get not only high interest rates, but you also get high fees. And then the majority of it is securitized outside and that generates a fee additionally. So those loans are incredibly profitable and it makes your balance sheet much larger than it is. For example, on the $4.54, dollars right?

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

So if you look at that $4.54 dollars even in our current programs that we have that $4.54 dollars really represented about $2,000,000,000 of loans that actually went through the system and were repaid. And the $19,000,000 being part of the loss of people who didn't pay it back, but that is far outweighed by the fees that were generated for people wanting the money early. That's that $20.19 is that hasn't been disclosed. You see our part of it. You don't see our partners part of it.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

But that's as far as that loss is far outweighed by the fees generated.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Well, yes, it seems like a good product to get some strong risk adjusted returns here. If I can switch topics just a little bit here. The really strong deposit growth and influx of cash balances, was that related at all to the collateral you receive related to these loans? And then separately, do you plan to deploy that or move the balance sheet lower? Just looking for some color there.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Thank you.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

No, that's not really the driver. So the volume is the driver on that 1.

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

The volume is the driver. There is some because the secured credit card obviously is secured with deposits. You do have some of that in the growth.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

But the GDV number is really the It's the main driver. It's the main driver. And we also have you got to remember, we also have other temporary flow businesses like B2B payments and stuff that are growing very quickly that money goes through the bank and that bank is here temporarily. So it's really a volume drip. That's a deposit number.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

If you look at our GDP growth, it was 15%, right? And the deposit growth was 16%. That tells you that right there. The extra 1% is what probably the credit builder part of it.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Got you.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Okay. Appreciate all

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

the color guys. Thank you.

[Operator]

And your next question comes from the line of Joe Yanshenius with Raymond James. Please go ahead.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Good morning.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Hey, how are you? Good morning.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Doing well. I was hoping I could discuss your credit enhanced program a bit more. Do you have any internal concentration limits on the size of the program? And should we think about the bulk of the near term ramp coming from new partners or from existing partners adopting the program?

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Yes. So we do, yes. We do. We have a conservative. Depending on the programs we have, we go through a process and we basically set a limit.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

And I think they would be there'll be a use of our balance sheet and it depends on the types of products. But when we'll redo this, we will set a limit. And even though this is kind of fully secured at this time, we have set a limit on the balance sheet that we think is conservative and we go through our risk management process. So and the ramp up is we really do see clear vision to $1,000,000,000 plus this year. Most of that will come from our current partner, but it will we'll be ramping up other programs.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

And so it's very possible. And if you recall, Apex 02/30, we had a $3,000,000,000 kind of target for 02/30. It's very possible that $3,000,000,000 will be reached at the So it's our perspective has changed on the people who want to work with us and build out these programs. But you'll see the like we said before, you'll see that lower risk business is kind of the first adoption. And then you'll see the diversification, securitization and you also see higher rate loans in a very diversified manner being put on the balance sheet.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

It won't if you think about it just conceptually, if we had $3,000,000,000 in a couple of years, probably up to $2,000,000,000 would be this very, very low risk business. And then you'd have a diversified strips of business for maybe $1,000,000,000 on the balance sheet. And that probably wouldn't grow substantially over the next couple of years. But we would be working with more and more partners and there would probably be more securitization of those assets.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Got it. I appreciate it. That was very helpful. And then just maybe you attack the collateral question for your credit enhancement program in a different way. If you reach that $1,000,000,000 balance at some point in the year, what would be the range of maybe associated deposits that would come with that that you would hold?

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

It's going to vary. But remember, it's rolling over, right? So, to the extent that there are losses where we have credit enhancements in that way, So the money gets or either the bad loan the unpaid loans are sold or otherwise repaid. It's a constant flow. So that balance is never really going to grow that significantly.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Got it.

[Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer at The Bancorp]

Yes, okay.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Okay. And then just kind of switching gears here. Can can you discuss any themes or trends that have emerged from recent contract negotiations with your partners?

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

It's a very it's the same thing for the last couple of years. We're going to add three, four partners a year. They're expanded needs. So our conversations are not only on the expanding to the credit side or maybe on the debit side of your credit provider, but also things like we're building out in embedded finance. So the conversations are more broad.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

The disruption in the industry has made the industry for us at least far less price sensitive, right? So people especially the large complex players are looking for a long term. If they've decided and I think most of them have not to be a financial institution per se, they are looking for a five year minimum ten year, twenty year solution, somebody that they can work with to provide access to the banking system, but then also grow with them and be an enabler. And at the end of the day, we're not the innovator, we're the enabler. So do we have the wisdom from past experience, but also the relationships in the industry of which we obviously do to solve problems for them because they want to innovate.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

It's clear that all these fintechs now want to have a very diversified portfolio. And it's not even debit credit embedded finance. It might even be things like securities trading etcetera. So that's where this industry is going. And so we're developing our capabilities along with it, right?

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

And that demand is definitely there. We don't I think we're going to have like we saw in the we're going to have a dramatic 25. If you just take our run rate and just multiply it by 4, you'll see substantial growth. But what's most exciting isn't that for us it's these new product development areas. And once again it's a layer cake.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

So we've got the base business growing double digits and then you add on to products a rapid expansion of things like rapid funds and then you also have new product categories which are all fee based and then have a totally connected to all the other fees that we're generating that create sustainable GDV. So they're more complex. They're much more product focused. There's not a lot of pricing pressure at least now on us. But we're a fair price too.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

We're not we have such scale that we when we do these big contracts they have tiers. So as we grow with our clients and they expand their product set on our base business they get they reach certain levels. We make more money and they make more money. So everybody and we're very if you recall, we're very small piece of the interchange story. So we're the last person to we have all the money in the beginning, but we don't keep a lot of it.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

We give it to every Visa. We give it to the networks. We give it to our program managers. But because of our scale and sophistication, we can turn a very little bit of remuneration into because there's so much going through the bank. We can be very efficient for our partner, but we can make a lot of money while we're doing that.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

No, that was very thorough. And then last 1 for me here. What is the timing on the repayment of your sub debt that you called out? And then separately, is there any reason buyback activity wins netback in 2026?

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Yes.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Are there any other capital deployment priorities

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

to continue?

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

No, unless there is some inorganic thing that we did. And we don't expect to do anything big like that. So we are dedicated to the 100% repatriation of our net income. So the senior secured debt, we never had any sub debt. We raised $100,000,000 at low interest rates.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

It was at a very low coupon when that was and we did $100,000,000 kind of to test it. It was way oversubscribed and we had it for five years and now it's being repaid. There's $96,000,000 left of it. We actually bought some of it in the open market during the stress period because we actually got it at a discount and so we put our own debt back. But so the we could substantially the only reason we would borrow probably is to the stock wasn't fairly valued in an extreme way.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

So we expect just to pay back the $96,000,000 We can do that out of cash flow and sustain our capital. Next year as we continue to grow net income, buybacks will mirror net income because we have no other debt. That's our only debt. There's no other use of it. So we don't and we don't need any more capital because of Reg II and the Durban limit.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

So unless they raise the Durban limit to and there's some discussion that that might happen, which would be enormously beneficial for us if that happens. Unless that happens, we're going to stay giving all the money back, but increasing the velocity of our balance sheet dramatically through things like credit sponsorship, through the sale of maybe SBA guaranteed by selling rebel loans and packages and stuff like we have in the past. And that will make our balance sheet appear to be a lot more productive than the average balance sheet, which would continue will allow us to continue to generate substantial fees. Now if you think about I'm going to give you 1 more thing. And that's if you thought about the last few years, we had a filling up of the balance sheet in the NIM category, right?

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

So we're building what we consider low risk businesses. And we were kind of building for the future of this product diversification. And then we got that balance sheet opportunity. We hadn't bought a bond and we locked in our and lowered our asset sensitivity last year in April 0 when we bought almost $1,000,000,000 of bonds, right? So interest rates go down, it's not really going to affect us very much about 1 for 100 basis.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

But now it's the inflection point. Now it's not those businesses that are driving and the it's the businesses the NIM businesses levering up and then it was locking it in, we went from variable to fixed. Now the whole story now is credit sponsorship, it's fintech, right? So now fee growth is going to take over at least for the next couple of years until we get a lot of these other programs that are much higher spread in the consumer fintech world, but it will all be fintech. So you're going to get a reordering of how our balance sheet has grown.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

And then the big bump from the what we call Project Flex was the balance sheet management during the pandemic. And now it's the whole story is the fintech story. The growth is there. The fee growth is there. Even in the credit side, it's going to be mostly the credit sponsorship story.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

Questions?

[Operator]

All right. Thank you. And there are no further questions at this time. I would like to turn it back to our CEO, Damian Kozlowski, for closing remarks.

[Damian Kozlowski, President & Chief Executive Officer at The Bancorp]

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

[Operator]

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect. Have a lovely day.

Participants

Executives

• Andres Viroslav, Director of Investor Relations
• Damian Kozlowski, President & Chief Executive Officer
• Paul Frenkiel, Executive VP of Strategy, Secretary, CFO & Principal Accounting Officer

Analysts

• Frank Schiraldi, Managing Director at Piper Sandler Companies
• Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)
• Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial