Bancorp (TBBK) Q1 2025 earnings call transcript

Thank you, operator. Good morning, and thank you for joining us today for the Bancorp's first quarter 2025 financial results conference call. On the call to me today are Damian Kozlowski, Chief Executive Officer, and Marty Egan, our Interim Chief Financial Officer. 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 p. m. Eastern Time Today.

The dial-in for the replay is 1-888-660-6264 with passcode of 803-95. Before I turn the call over to Damian, I would like to remind everyone that our comments and responses to questions reflects management's view as of today, April 25, 2025. Yesterday, we issued our first quarter earnings release and updated investor presentation. Both are available on our investor relations website. We will make certain for-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 risk and uncertainties that crude calls actual results that differ materially from those expectations and assumptions we mentioned today.

These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission. In addition, we will be referring to certain non-GAP financial measures during this call. Additional details and reconciliations of GAP to adjust at non-GAP financial measures are in the earnings release and the investor presentation. 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 here of 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.

Thank you, Andre. Good morning, everyone. The Bancorp earned a $1.19 per diluted share in the first quarter, reflecting a 12% increase over the first quarter of 24. It income increased 1% between these periods while outstanding shares were reduced as a result of increased repurchases that occurred during 2024. Our FinTech Solutions Group continues to show significant momentum with GDB increasing 18% year over year and total fees growing 26%. That sponsorship balance is grew to 574 million or 26% quarter of a quarter and we expect these balances to grow to over a billion by year end 25.

We believe that growth in the first quarter was slowed by the impact of tax refunds and we expect greater growth in balances over the next three quarters. While loan balances grew 17% year over year, net interest income was down 3%. Loan balances excluding consumer FinTech loans grew 6%. That interest income reflected in part the impact of lower rate environment in the latter part of 24 on our loan interest income, which was down 5%. The impact of lower rates was mitigated by a purchase of 900 million of fixed rate bonds in April 2024 and excess deposit balances held in fed funds. Those bond purchases and other fixed rate strategies have reduced our assets sensitivity significantly.

We continue to focus on reducing substandard assets in our rebel portfolio. Respective rebels substandard and special mentioned loans at March 31, 25 were down 1% and 20% compared to the prior quarter end. We continue to believe that we are at the peak of substandard assets and believe we will show progress in reducing substandard assets over the next several quarters.

Lastly, based on the momentum in our FinTech solutions group and our reduced asset sensitivity, we are confirming guidance of 5.25 per diluted share for 25. EPS does not include the impact of 150 million of stock buybacks authorized for 2025. I now turn the call over to our interim CFO, Marty Egan.

Thank you, Damien. As was the case in a prior quarter, provisions for credit losses for consumer FinTech loans and pre-standing credit enhancements were recorded in the financial statements in like amounts with no impact on net income. In the current quarter, the provision related to consumer FinTech loans was 45.9 million and the credit enhancement income was also 45.9 million.

That interest income was 3% lower than the first quarter of 2024, while the first quarter net interest margin of 4.07 compared to 4.55% for the fourth quarter of 2024. As Damien noted, current quarter net interest income was impacted by lower rate environment, which also impacted the net interest margin, as long yields fell more than deposit rates. Additionally, fees on the majority of our growing consumer FinTech loan balances are recorded as non-interest income. Average FinTech solutions deposits for the quarter increased 26% to 7.81 billion from 6.18 billion in the first quarter of 2024.

As noted in our filings, we have the capacity to transfer deposits from certain of our relationships off our Bauci, which we utilize for Bauci management. Excluding consumer FinTech loan, credit enhancement income, non-interest income for Q1 2025 was 37.8 million, which was 29% higher than Q1 2024. Total FinTech pays account for most of that increase. Prepaid, debit card, ACH and other payment fees increased 13% to 30.8 million over that period, and consumer credit FinTech fees of $3.6 million account for the remaining increase in FinTech fees.

Non-interest expense for Q1 2025 was 53.3 million, which was 14% higher than Q1 2024. The increase included 11% increase in salaries and benefits. Additional details regarding our loan portfolios are included in the related tables and our personalies as are earnings contributions for our payments businesses. I will now turn the call back to Damien.

Thank you, Marty. Operator, could you open the line for questions?

Good morning, Craig. I wonder if you guys could just in terms of the margin, which has obviously been a little bit of a moving target here. You mentioned the reduced assets sensitivity and obviously the FinTech loans, you know, you get income elsewhere.

But in terms of, I just for modeling purposes, I was wondering if you could provide the average yield on the FinTech loans over the last couple of quarters and also if you could give what your asset sensitivity is now in terms of, you know, given a 25 basis point rate cut.

Okay. So for the FinTech loans, it's a fed funds. We get a zero interest rate deposit and we get 5% on the loans. So that portion of it is translated into a fee.

So that's the, for modeling purposes, that does move if you've got, that is based on an enhancement of fed funds, which stops at some point. So that might move a little bit, but that's not really very sensitive. Generally, it's a bracketed kind of fee base. So it'll, that'll help maintain the NIM, even if you went down to zero interest rates, that would, that would not, you know, it's still be significantly above fed funds. On the, and the other question, what was the other question? The asset sensitivity, you know, how much of? Oh, okay. Yeah. So that moved around based on both the liabilities and the assets, right? So when we purchased, we've got it down to almost, you know, a neutral, depending on, you know, it moves around temporarily depending on our modeling, but we reduced it a lot.

At one point, it was 8%. And I think in the last quarter, it was close to 1%, right? And, but it moved around. So depending on if we get a surge in deposits, what those deposits are, so it can move from 1 to 3% depending on the utilization of the battle chain, right? And we're, we still target to be in that 1% zone and be just slightly asset sensitive.

Yes, currently it is. Yes.

Yeah. Well, we get, yeah, we get loan balances, but we don't get any.

We have, we have one small program that's growing. So you will see it. I think there's a little bit of interest on the current income statement. And that's, there's, there's four different programs remember. And there's something called inks the loan, which is now, you know, when we roll out these programs, our partner is kind of gated, they go in stages. So that one is growing now.

So that one was approximately 25 million at the end of last quarter. So that one will be growing and that won't show up in fees, that'll enhance the NIMM.

But overall, as these things grow, as you go from 500 million to a billion, you know, your NIMM is just going to correct.

Do you know what the, we don't, we haven't disclosed that. We don't have that in our disclosures. And we'll think about putting that in. But we haven't disclosed that in the earnings release. So we'll have to look at that.

I guess just to say the book, the book has been fairly stable. You know, the deal market isn't great right now. So we're being very selective. We put on enhanced underwriting because of the tariff. So we have greater reserves on the loans. We have, you know, questionnaires to different borrowers like in things in SBA. So we're going through based on the current market environment. We're being very careful. Spreads were very narrow and they widened. So, you know, the, but there's deal still getting done, but we're, we're at enhanced underwriting and we're putting additional reserves and things like the rebel portfolio to make sure that there's not any disruption and that there's plenty of funds available to rehab departments.

Yeah, it was a mixed issue. So, so our programs vary greatly. That on the economics of the program, but how it's split between deposit and fees. And so we had one of our programs that is, that is more deposit based, has much higher deposit that we pay out, ballooned in the first quarter due to insurance payments. And so you saw a higher funding cost, which will roll off over the next quarter or so. So it's these, it was a, about 500 million dollars of deposits that are related to insurance settlements. And that will roll off. And that was part of the reason you saw a higher deposit cost.

Yeah, that was definitely one of the drivers. We had very good deposit growth. The tax season was extremely strong. And you know, we had for the first time deposit balances on many end of weekends that were 9 billion. We've never hit that type of number before. And so there was a lot of tax receipts. It actually had an impact on things like my pay, because people got their tax returns. So they didn't take as much of our, of the FinTech loans in February, which reduced our fee income in February.

So it's, you know, it could be very volatile.

It should be. Yes. So that's exactly, that's correct.

So the deposit cost should be backed down kind of in less than 40% data. Depending on when those deposits, and we're also, there's more than that going on, we're offloading high cost deposits. So we have variability in our deposit base. And so some higher cost deposits, like saving deposits, we've been moving off the balance sheet for some of our programs. So that also will help the NIM and lower the deposit costs.

No, that was once again, that's very volatile. I think you have to look at that over, that's a mix. Once again, it's a mix issue, quarter to quarter. And once again, based on, it's hard in the first quarter because it's the anomalous quarter due to the tax receipts. So it should be that was lower than usual. That's the first part. The second part is the one to one that we used to experience is better if you put the two lines together.

So if you put that ACH and other fee line together with the card line, it's because our pricing has more and more moved to multiple products. And because of that, it's multiple fees coming from the same programs. So it's better to look at it by, you know, that 13 percent number is the way to look at the GDB. So if we had 18 percent growth and 13 percent total fee growth for the first two lines in the financial statements, you can keep the credit sponsorship out. That's even additive. But once again, that's the same program, right? So for a chime, you're getting triple layers. You know, we call it the layer, but you got triple layers of fees coming from the program.

And if you look in the past and try to compare it, there weren't these other ancillary services. So it's much better to take the first two lines, the card fees and the other fees together, verse GDB, and that'll give you the first two, you know, the first two fee sources for our larger programs. And that's why that's a more relevant measure than it has, say, five years ago.

Yes, so we're working with the largest high-growth partners. And so we've been preparing ourselves. We sell them take many of the competitors in the space have programs that we wouldn't necessarily be interested in. We're looking at the very large, expanding our large relationships, right? And then adding product capabilities. And I think we have some very exciting things. You know, we think we can sustain this GDB level for multiple years. I think we'll have interesting things to tell the market. You know, things aren't done until they're done. But I think as we add these larger programs, they will be meaningful to the financial statements. And when they happen, and when they're willing to, ready to be announced, we'll either have a press release or a case.

So we think our current GDB, you know, that 1813 is sustainable. And now with the enhancement of credit sponsorship, you know, we can think, you know, mid-20s is, you know, a Kager of 25% is not out of the question. And that's we're still building other delivery models, like embedded finance, which would enhance that additionally and add other credit sponsorship programs.

So we we're preparing ourselves to have expanded relationships with more products and a sustained level of higher GDB, which has a lot of implications. So, you know, we have to invest in our platform and make it extremely robust. We're not, you know, it's systemically important to the financial industry. When you have such a big exposure to the largest programs that are, you know, that span 15 different verticals, but span every state of the union in almost every person. So we're investing in it. We expect sustained levels of higher GDB growth. And when we get a product or new relationship expansion, that's meaningful. We will announce it when at the appropriate time.

Yes. So in our plan, there's a difference between our plan and, say, our just those four programs plan. So in our own budget, it's in the eight, you know, 50 range. In the budget of our of just those four programs is over a billion dollars. So yes, the answer is yes.

Even if we don't add a program, we'll be able to meet that $1 billion target. And we're ready well on the way. We're at 571 at the end of the quarter. The growth we're experiencing is very robust. So we think we'll be able to get there even just with those four.

So and I've mentioned this before, but nothing has been decided. And that's subject to board approval and everything else where our net income, you know, kind of target is around the 250 level.

And 100 million of that is going to repay debt approximately 100 million. We have one senior secured facility at the holding company level. And we plan to repay that debt. And that's why our buyback is 150. At that, at that repayment, we're basically where we want to be on our capital levels. So the, so we could refinance that debt or add more. It's doubtful that we just do 100 million.

We would do more than that. And then we would use all those proceeds, depending on the rates in the market and our stock price, we would use that to enhance our buyback. However, I just want to reiterate, nothing has been decided. We're on the track right now just to repay the debt, but it is being considered that we would raise probably more than the debt that's going to be repaid and use those for buybacks, depending on the prevailing rates and the stock price.

Yeah. So our data has been used by even institutions like the Fed. It's so broad to understand activity. So the thing I would say is that we're nominally based, not real dollars. So things like inflation. So say you kept consumer spending go down by 4%, but inflation was eight. We'd actually have a 4% positive. It's all nominal. And it's all a lot of our payment volume is necessary payment volume. It's coming from normal, everyday people doing transactions that are absolutely necessary. You know, they're buying milk or they're going to the theater or whatever it is. And so even if consumer spending goes down in a deflationary environment, it would be bad for us. You know, you got that environment and consumer spending went down.

That would be very bad for us. But what's good for us? Inflation is actually good for our realization of revenue. So you'd have to have a less inflation goes down much lower and consumer spending was down much lower. But remember, our consumer spending is definitely not discretionary. A lot of our spending is necessary. You know, you get a paycheck and you use a lot of people are paycheck to paycheck. Our portfolio tends to be more paycheck to paycheck individuals.

Thank you very much.

I don't think so. This was a this was and they had a change in their group. This is a group that's trying to build a portfolio of assets and this potential, you know, this this change in ownership strengthens that group. It didn't take away from that group. And so, you know, they had to work out among themselves through several different filings and negotiations. And so they're continuing to support the property and they paid insurance and they're fixing the it's been leased up. You know, it's not all the way leased up, but it's in a much better position almost at the break-even level. It's in the 65, 70 percent level now. So it's they only have, you know, this is where the property starts making money.

So it's everything's in everything's a green light. They're just we've been very flexible with them because they've been a great partner and they, you know, they say what they're going to do and and they had this issue and we wanted to make sure that they, you know, they're still investing in the property. So they're very good faith situation. We're expecting we're still expecting the deposit in the close date to be held.

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