Bancorp (TBBK) Q1 2026 earnings call transcript

I'd now like to hand the call over to the rest of your love. Please go ahead. 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 to me today are Damian Kozlowski, Chief Executive Officer, and Dominic Knuso, 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 12 p. m. Eastern Time today. 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 reflects management's view as of today, April 24th, 2026. Yesterday, we issued our first quarter earnings release and updated ancestral presentation. Both are available on our investor relations website. We will make certain four looking statements on this call. These four, these statements are subject to the safe harbor provisions that a private security litigation reform act of 1995 and are subject to risks and uncertainties that could cause actual results that differ materially from the expectations and assumptions we mentioned today. These factors and uncertainties are discussed in our reports and filings of 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 that non-gap financial measures are in their earnings release. Please note that the Bank Corp undertakes no obligation to publicly release the results. Many 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 Bank Corp's Chief Executive Officer, Damian Kozlowski. Damian?

Thank you, Andres, and thank you for joining our call today. The Bank Corp earned $1.41 a share in the fourth quarter. EPS growth year over year was 18%. First quarter ROE was 35.1 and ROA was 2.57. Fintech, GDD continues 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. 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 26 and 27 and show progress in the creation to our financials. Credit sponsorship balances soared in the first quarter to $1.65 billion, a 50% not 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 partner's marketing time once. 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. We also made continued progress in reducing our criticized assets which includes both substandard and special mentioned assets. These assets declined from 194.5 million to 163.1 million or 16% were recorded. We expect more progress over the next two quarters.

Lastly, we are maintaining our guidance at 590 EPS for 26 with $1.75 to share in the fourth quarter. 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 quarter in 26 with 27 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 beyond EPS accretion. EPS gains are subject to development, implementation, timelines, and fintech. I now turn the call over to our CFO, Dominic Knuso, Dominic.

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. 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 link 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.

We also ended the quarter with $1.34 billion in off-balance sheet deposits comparing to 850 million at the end of the fourth quarter and 793 million prior year, demonstrating the continued growth of our partnership-based deposit franchise, along with the strength of our overall liquidity position. Name 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 mixed 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 NIMM, especially as we continue to mix shift loans towards Fintech, Fintech lending fees are the equivalent to an additional 24 basis points of net interest margin. 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.

Not an interest income mix, excluding credit enhancement, was 33% compared to 30% in the fourth quarter and 29% in the first quarter of 2025. Sintech 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 on the quarter is a leading indicator of Sintech fee growth both in the lending fees and the higher transaction fees due to the higher volume of churn in that portfolio.

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 prior quarter and down 75% over the last 18 months.

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. 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.

That 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, building out embedded finance capabilities, along with launching new products. At the same time, we are leveraging AI and redeploying cost across the organization to continue to improve efficiency and advocate resources to support our Fintech initiatives.

Operator, you may now open the call for questions.

Good morning, Joe.

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. It does take a while to fully build out the capability, depending on what the use case is. You know, it could be very limited or it could be very broad. So that impact of embedded financial will be fulfilled in 27 and 28. So very little revenue is in our own plan for 26 for embedded. 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.

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? It's in our own forecast. That's a small part. You know, it's basically gravy and the way we look at, you know, our own forecasting over the three to five years, it wouldn't be as we grow the other parts, the main initiatives that's literally gravy on top. You know, it's not a big part of our own planning. 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 a select occasion, we will get some spread on transferring those deposits through a network to other banks.

Well, we're going to return 100%, as we've said before, of share buyback from our net income until, you know, we get a multiple that we think is appropriate for our ROE and growth. So that, you know, whatever we get in that income, we'll just be back to Cheryl to two buybacks. Dominic, can you give you a good Aubrey update?

Sure. Good morning. Yeah. So we continue to invest in the property to increase the occupancy rate. As we, the occupancy rate of available rooms has been 80% even as we've doubled it. And there are plans to continue to finish the remaining 50 units that need to be upgraded. You know, we're just over 60% of occupancy on a total unit basis. 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. So it's impact to our financial suit should be neutral. And, you know, 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.

We're looking to I think will be totally full if we're going to go to stabilization. That would probably be a first quarter next year event. 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. So if we get the stabilization probably would happen at the correct end of next year where stabilization is in the high 80s low 90s and then we would be able at least to get obviously our our basis covered but the appraisals are in the low 50s. So and if we were to you know monetize it would be a rounding error to our buyback you know if we're we'll get our buyback 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 and then we would return 100% you know 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 at this current time because we've done so many so much work already.

All of it. All of it.

Oh credit and answer credit sponsor loans which one do you mean?

So 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 you know parts of bigger origination slices of it right and keep it on the balance sheet but of the sponsorship loans I mean it's possible you know when we're looking at our pipeline that will be a much bigger part of our business. Now that's that's over many years so we're going to and many of remember we're any of our businesses like SBA you know the real estate business which we have distributed before are our fairly liquid assets. The same is true with their demand loans on the institutional. So this is a multi-year thing and it really depends on the problems.

That's very unlikely to happen. There'll be some balance sheet used for future programs some might be bigger than others China's a very special case. So this is a very you know when we look at our APEX 2030 strategy we might you know 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.

So with the economics I let Dominic handle it the overall economics the NIMM 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% NIMM. The whole portfolio products if you take a look at all the economics that mean and the cost structure on that is not traditional lending right so you're not supporting it with origination all the things that you would on a traditional business so and it's credit secured so we're getting a you know the whole economics over the portfolio is around that would move up over time potentially with different products sets and I'm only talking about China but Dominic do you want to dig a little deeper?

Sure and to your question you know the the unsecured 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 but across all products can use to improve as you can see in those metrics as you know the performance of customers along with the growth demonstrates the growth potential of the programs.

The success in the quarter we're very pleased with and I think outrun ran 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 so while targets remain the same I think there was just a little bit of a pull forward a volume that we anticipate which is very positive and we're excited to see so it just means that the balance sheet will be a little higher earlier in this year than originally expected.

Good morning Tim.

No very little. No so very little right so so our partners are very you know they're meticulous and when they launch these programs in solar waste so we go through a long testing phase and then you start you were in the full I would say turn the dial stage where everything is set you know we're watching you have incremental kind of gating issues 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 that by the end of the year it should be fairly meaningful to our financials. It's all all predicated on the timelines right of that gating.

It's going very well so far but you know things can 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. So everything's going well and I think all the us are partner all pleased with the implementation.

Well it'll ramp up this year it'll start being meaningful you know when we talk about our own forecast with our programs you know we we see a bump in the fourth quarter that's part of the bump right it's not embedded finance like we were saying before but it is you know it's definitely you know the chime lending it's definitely a cash app other programs that you know we will announce other lending programs we'll 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 27 there will be multiple things ramping up together which will really lead us into that 27 guidance that we have.

Yeah the reason I said that is because I just wanted to give the there's a lot of confusion because it's indifferent you know it's it's we don't break it out separately and it's in total economics right so we're funding it right with non-interest bearing deposits right there's multiple you know different products there's four and it's growing different products but if you look at the entire economics of it today to the bank core right which it's around 3% NIMB for us right because it's obviously being funded as it is secured card or all of the FinTech. Everything together we don't give independent economics but it's a blended economics that's about what it is right that that potentially will grow over time depending on the product mix and it's a very I think it's incredibly synergistic for both us and our partner I think it's a it's a you know it works for us for both of us the programs have grown obviously it's been a great source of a great source for revenue but also of relationship deepening for time and you know we're trying to support their initiatives as you know by using our by using our balance sheet now that's once again that's a very unique relationship it's I'm not saying that we will have like we do a chime that's very unique where we've you know we have a very deep relationship with them 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 are part of the interchange that that chime originates so on the secured card so not a 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 so at any of their of their products where 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 they've not interest bearing deposits there's some of their savings deposits some of those are off balance sheet so it's a you know there's the lending part where if you add all the economics together it's around 3% right but it also has it's secured remember it's at credit enhancement right then separately there's a whole stream of revenue obviously that appears in fees that's only linked to interchange and then the third part of economics there's other deposits that fund the bank excess deposits that are went out that provide deposits to the bank too so that's that's it's such a broad deep relationship that there's multiple revenue streams from the chime relationship lending is just one of them yeah okay i get that 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 and the interest income and then those average balances it looks like it's a annualized yield of about 2.7 percent and it's you know pushing off these non-fintech loans yielding you know nearly seven and i know obviously not credit risk it's not a traditional loan where it costs as much to originate um where where the and maybe it's just the broader parts of that relationship with chime so i know all of this ties in together like you mentioned um but well you're not that you're not that far off right so that's 2.7 we're saying it's around three today right with the mix currently right but the cost structure is radically different it's only a fraction of traditional right so you're getting a three percent nim and that's once again it's separate from the other two revenue streams you're getting a three percent 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 so if you if you've had them it was that's like a almost a it's almost a a bond right you could think about a three percent a short-term bond that's yielding three percent 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 right and the velocity there is extremely quick right so you were 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 at gdb's but 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 you know parking loans on the balance sheet and potentially off-balance sheet in the future for loans off-balance sheet deposits that are 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 creative to where we are today which is why we expect and intend to continue to shift the balance sheet towards these products guy all that answers my question very clearly thank you and in terms of like the velocity can you maybe let's know like what was the volume on the loans this quarter or how long are you holding these on the balance sheet on average and then you know how might that change in the future whether you guys change your strategy or you know these two upcoming credit sponsorship programs sound like they might be shorter duration um you know if you plan to transfer more securitization anything like that um would be really helpful 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 and we intend to do all those things right so we're we tend to provide some on-balance sheet probably not as much as our current relationship with China to other partners we intend to securitize a lot of it so you'll get incredibly high velocity and you'll hold those loans from three to 30 days probably at the most usually it's only a few days we'll be purchased back by the tech partner and then securitized and then there is definitely a situation where we'll be holding pieces of loans at a much higher yield right so 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 and but those loans will be very very high so if you look at the name today of the bank or where it is today right we're around four percent if you add back what Dominik was saying the basis points and the fees that potentially could be viewed as interest right so it's not that different you know we had some deterioration in our name but if you add back the increase fees from this quarter versus last year it's you know 12 basis 13 basis points different than them your name is going to 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 so we'll take more high rent deposits off the balance sheet and then if when you look at these programs the chime situation is the lowest probably the lowest them situation you would have because all the synergistic revenue so that over time once again adding that potential fees from the line that we have that third line in our financials around FinTech loan fees plus you look obviously the if there's any interest on those those is already in our nim calculation 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 and so you'll get effective yields very short-term loans very quick many of them will be back stopped versus curidized so you'll have a conversion of a 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 the velocity will go up very high and if you add back the fees on these loans 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 great yeah i mean that's really helpful i mean you know regardless of where the the reported them goes apex 2030 uh ROA four percent frosty at 40 you know bottom line is moving out yeah but you just look at just look at this quarter we had a 35% ROA look at our ROA right and if you consider that the fact that we're going to be repatriating our equity or equity stays the same so any incredible you know as we as our net income moves up our obviously our ROA will continue to move up and our efficiency ratio is likely to move down yeah that's great okay um another area that has become a bigger and bigger opportunity in the syntax side of thanks for you guys this was all-foundry deposits i think i've gotten a 1.3 billion dollars right now um you've your press release mentioned nine hundred thousand earned on deposit sweep in other income is that where all the revenue from your offbound sheets deposits are reported just to make sure i'm at least all the revenue yes i'm gonna can answer that but yes that's correct that's where it's located okay now as you mentioned earlier on the call you know the first quarter is seasonally high just because of tax season we do expect it to contribute but it's probably a secondary or tertiary you know benefit from all the strategies we just talked about okay yep makes sense um that i think on the last end of this call i got a few more if that's okay um on on the rebel book it's good to see another quarter of improvement in the credit metrics there could you give us an update on how the maturities and refinancing within the rebel book are going right now and like one thing i'm looking at it's how the percentage of rebel balance is maturing over the next 12 months to quantity meaningfully you're like for the first time in a while on q4 it's now less than 50 percent you have that updated number for q1 um because it kind of seems like it can indicate you're seeing less of one year extension than more actual payoffs yes so but remember we have great visibility these are repositioning mostly of workforce housing and they require work so these constant draws right we have reserves and everything so we 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 right we haven't we've maintained a portfolio but that bump in origin that large bump in origination during that period that we've resulted in classified assets has worked through the system right so those were the those were the buildings that were having issues due to the supply shock interest rate increases sharp interest rate increases so that's that bubble has gone through the system so that's dropping because we just haven't had as many originations right so and and 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 to one year extensions and people take advantage of that sometime it's at both of our agreement and there's stabilized loans at that point they may want to do an exit and they're not exactly want to do it at this interest rate so yeah that that the reason that was so high was because of that bubble and that bubble is I don't know the exact maybe dominant cash that out of fingertips maybe we can we can publish it in the future but that that is slowly working down quickly 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 eight and a half percent to seven point six 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 so many extensions or modifications that go down if you want to handle it sure yeah well just a you know as a reminder a third of that portfolio is variable so you'd clearly see a step down with the short-term interest rate environment that we've seen over the past year 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 you know to that second term and were either recapped or refinanced or sold out you know those recaps and refinances were at lower rates because they were at more stable you know stabilized values you know previous investments stronger you know investors so those rates by the quality of the positioning of those loans brought down the rate combined with the variable rate environment you know 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 you'll continue to see well you know loans rolling off in the low eights and being put on in the mid mid sixes so you'll see that natural portfolio churn but that's just you know the interest rate environment we're in nothing more than that 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 it seems like that would be a big lift for a lot of the fast banks given like the third party relationships and how small some of these accounts are and like on the opportunity size you know would your prepaid card products be required to obtain citizen like citizenship info as well it seems like it could push a lot of people towards those sort of products well i would be a very difficult thing to do since prepaid cards you know every prepaid card that would be every incentive card you know that would be cracker barrel you know what i mean them if you have rest of my cards that would be very difficult the there are some and 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 verse many institutions we have fairly good information in that area if it gets implemented it becomes a requirement everyone will have to do it 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 but we do collect a lot of depending on the type of account uh and use there is a lot of already information like social security numbers and everything for many of our not of our clients obviously but of their clients that end up being you know deposits at our bank so there is requirements already in place uh and we right now we don't know how that that has to play out whether that how that actually gets worked through the system obviously the regulators where everyone it would be you know fed said would be of everyone would have to be involved and it would have to be implemented over one period to die yeah yeah i mean i took this very little details exactly how it works so appreciate it thanks for taking all my questions guys no problem thank you thank you so i'd now like to hand the call back to Damien Kuzlowski for closing remarks thank you for joining us today everyone operator you may just connect the call thank you for attending today's call you may now just connect goodbye