The Bancorp - Earnings Call - Q1 2025
April 25, 2025
Executive Summary
- Q1 2025 EPS came in at $1.19, up 12% y/y but below S&P Global consensus of $1.24 (3 estimates), as NIM compressed to 4.07% (vs 5.15% y/y; 4.55% q/q) amid a mix-driven uptick in deposit costs and lower loan yields; management reaffirmed FY25 EPS guidance of $5.25. EPS actual $1.19 vs consensus $1.2367* (S&P Global); NIM drivers discussed by management.
- Revenue (S&P Global basis) beat: $128.53M actual vs $107.72M consensus*, supported by 26% growth in total fintech fees and recognition of offsetting consumer fintech credit enhancement income; ex-credit enhancement, noninterest income rose 29% y/y to $37.8M and GDV rose 18% y/y to $44.65B.
- Fintech credit sponsorship balances reached ~$574M at quarter-end (up 26% q/q), with management expecting >$1B by YE25; fees largely flow through noninterest income today, with some programs migrating to interest income over time.
- Asset quality remained stable in core books; REBL criticized assets are at/near peak and expected to decline over coming quarters; OREO sale remains on track pending buyer-related ownership change, with management still confident in closing.
- Potential stock catalysts: confirmed FY25 EPS guide of $5.25, expected NIM improvement in Q2 as higher-cost insurance-related deposits roll off and offloading of higher-cost deposits continues, and accelerating fintech credit sponsorship trajectory.
What Went Well and What Went Wrong
What Went Well
- Fintech growth and monetization: GDV +18% y/y to $44.65B, fintech fees +26% y/y (ACH/card/other +13% to $30.8M; consumer credit fintech fees $3.6M), reflecting organic partner growth and new client adds.
- Credit sponsorship scaling: Balances up ~26% q/q to ~$574M; management expects >$1B by YE25; CFO reiterated offsetting accounting (provision and credit enhancement income equal) with no net EPS impact this quarter.
- Capital and deposit quality: 95% of deposits estimated insured; leverage ratio 8.93% at HoldCo; average deposits +28% y/y to $8.31B, supporting liquidity and growth.
“Fintech Solutions continues to show significant momentum in both GDV (up 18% year-over-year) and fee growth (up 26% year-over-year). We are confirming guidance of $5.25 a share for 2025.” — CEO, Damian Kozlowski.
What Went Wrong
- EPS miss vs consensus amid NIM compression: NIM fell to 4.07% (vs 5.15% y/y; 4.55% q/q) as loan yields fell more than deposit costs; deposit mix included a ~$500M insurance-settlement related surge that temporarily lifted funding costs.
- NII down 3% y/y to $91.7M as rates drifted lower in late 2024 and consumer fintech balances shift economics toward fees (noninterest income), mechanically pressuring reported NIM despite profitability.
- Efficiency deteriorated: Efficiency ratio rose to 41% from 38% y/y (non-GAAP definition excluding credit enhancement), as operating expenses grew with scaling payments/compliance/IT and incentive comp.
Transcript
Operator (participant)
Good afternoon, ladies and gentlemen, and welcome to The Bancorp Inc. Q1 2025 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, April 25, 2025. I would now like to turn the conference over to Andres Viroslav. Please go ahead, sir.
Andres Viroslav (Director of Investor Relations)
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 with 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 12:00 P.M. Eastern Time today. The dial-in for the replay is 1-888-660-6264 with passcode of 80395. Before I turn the call over to Damian, I would like to remind everyone that our comments and responses to questions reflect management's view as of today, April 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 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 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'll be referring to certain non-GAAP financial measures during this call. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are in the earnings release 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 hereof or to reflect the occurrence of unanticipated events. Now, I'd like to turn the call over to The Bancorp's Chief Executive Officer, Damian Kozlowski. Damian?
Damian Kozlowski (President and CEO)
Thank you, Andres. Good morning, everyone. The Bancorp earned $1.19 per diluted share in the first quarter, reflecting a 12% increase over the first quarter of 2024. Net 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 GDV increasing 18% year-over-year and total fees growing 26%. Credit sponsorship balances grew to $574 million, or 26% quarter-over-quarter, and we expect these balances to grow to over $1 billion by year-end 2025. 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%.
Net interest income reflected in part the impact of lower rate environment in the latter part of 2024 on our loan interest income, which was down 5%. The impact of lower rates was mitigated by our 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 asset sensitivity significantly. We continue to focus on reducing substandard assets in our REBL portfolio. Respective REBL substandard and Special Mention loans at March 31, 2025 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 2025. 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.
Martin Egan (Interim CFO)
Thank you, Damian. As was the case in the prior quarter, provisions for credit losses for consumer Fintech loans and freestanding 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. Net 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 Damian noted, current quarter net interest income was impacted by a lower rate environment, which also impacted the net interest margin as loan 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 balance sheet, which we utilize for balance sheet 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 fees accounted 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 accounted 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 an 11% increase in salaries and benefits.
Additional details regarding our loan portfolios are included in the related tables in our press release as are our earnings contributions for our payments businesses. I will now turn the call back to Damian.
Damian Kozlowski (President and CEO)
Thank you, Marty. Operator, could you open the line for questions?
Operator (participant)
All right. Thank you.
Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for the first question. Your first question comes from Frank Schiraldi with Piper Sandler. Please go ahead.
Frank Schiraldi (Managing Director)
Good morning.
Damian Kozlowski (President and CEO)
Good morning, Frank.
Frank Schiraldi (Managing Director)
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 asset sensitivity, and obviously the Fintech loans, you get income elsewhere. In terms of, just for modeling purposes, I was wondering if you could provide the average yield on the Fintech loans over the last couple of quarters. Also, if you could give what your asset sensitivity is now in terms of given a 25 basis point rate cut.
Damian Kozlowski (President and CEO)
Okay. For the Fintech loans, it's a Fed funds. We get a zero interest rate deposit, and we get 5% on the loans. That portion of it is translated into a fee. For modeling purposes, that does move if you've got, that is based on an enhancement of Fed funds, which stops at some point. That might move a little bit, but that's not really very sensitive. Generally, it's a bracketed kind of fee base. That'll help maintain the NIM. Even if you went down to zero interest rates, that would not, it'd still be significantly above Fed funds. On the and the other question, what was the follow-up? What was the other question?
Frank Schiraldi (Managing Director)
The asset sensitivity, how much of.
Damian Kozlowski (President and CEO)
Oh, okay.
Yeah. That moves around based on both the liabilities and the assets, right? When we purchased, we got it down to almost a neutral, depending on, it moves around temporarily depending on our modeling, but we reduced it a lot. At one point, it was 8%. I think in the last quarter, it was close to 1%, right? It moves around. Depending on if we get a surge in deposits, what those deposits are. It can move from 1-3% depending on the utilization of the balance sheet, right? We still target to be in that 1% zone and be just slightly asset sensitive.
Frank Schiraldi (Managing Director)
Okay. Sorry, just on the Fintech stuff, did you say the yield is 5% on that? Is a lot of that flowing through fees as opposed to NII?
Damian Kozlowski (President and CEO)
Yes. Currently, it is, yes.
Frank Schiraldi (Managing Director)
Okay.
Damian Kozlowski (President and CEO)
It is the average, a couple of things. It is the average balance. There are payoffs. This thing, you see an average balance is really the thing they use, not the end-of-period balance. It goes through cycles. There is a lot of velocity on these loans. You get a lot of variability in balances over the quarter. If you use the 3.6 and you look at the average balance, it will not be exact, but it should be fairly close.
Frank Schiraldi (Managing Director)
To that 5%. You are really not getting any pickup through, you are getting these balances on the balance sheet and in the average balance sheet, but you are not getting any yield running through NII for these.
Damian Kozlowski (President and CEO)
Yeah. Yeah, we get loan balances, but we don't get any.
Frank Schiraldi (Managing Director)
Right.
Damian Kozlowski (President and CEO)
Yeah. 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. There are four different programs, remember. There's something called InstaLoan, which is now, when we roll out these programs, our partner is kind of gated. They go in stages. That one is growing now. That one was approximately $25 million at the end of last quarter. That one will be growing. That won't show up in fees. That'll enhance the NIM.
Frank Schiraldi (Managing Director)
Gotcha. Okay. All right. Overall, as these things grow, as you go from $500 million to $1 billion, your NIM's just going to fall because the denominators are higher and most of the stuff's coming through fees.
Damian Kozlowski (President and CEO)
Correct.
Frank Schiraldi (Managing Director)
Okay. Just a couple of quick ones on credit, or just in terms of the REBL migration, you continue to grow that book. How successful are you guys? I mean, I would imagine some stuff is starting to move off the balance sheet, is stabilized and moving into permanent financing. Do you have any numbers you can share on those outflows in the first quarter?
Damian Kozlowski (President and CEO)
Do you know what the. We haven't disclosed that. We don't have that in our disclosures. We'll think about putting that in. We haven't disclosed that in the earnings release. We'll have to look at that.
Frank Schiraldi (Managing Director)
Okay. I guess just generally.
Damian Kozlowski (President and CEO)
It's fairly stable. The book has been fairly stable. The deal market isn't great right now. We're being very selective. We've put on enhanced underwriting because of the tariffs. We have greater reserves on the loans. We have questionnaires to different borrowers and things in SBA. We're going through based on the current market environment. We're being very careful. Spreads were very narrow, and they've widened. There are deals still getting done. We're enhanced underwriting, and we're putting additional reserves in things like the REBL portfolio to make sure that there's not any disruption and that there's plenty of funds available to rehab apartments.
Frank Schiraldi (Managing Director)
Okay. Okay. I'll let someone else ask a question. I'll re-queue. Thanks.
Damian Kozlowski (President and CEO)
Thank you.
Operator (participant)
Thank you. The next question comes from Tim Switzer with KBW. Please go ahead, sir.
Tim Switzer (VP of Equity Research)
Hey, good morning. Thank you for taking my questions. I have a follow-up on the margin trajectory in Q1. We saw the loan yields come down similar to Q4. The deposit cost did not come down quite as much. I know you guys kind of have a contractual almost 40% beta embedded from the portfolio. Is there a timing difference here that we should see a catch-up in Q2? What drove the more stable deposit cost?
Damian Kozlowski (President and CEO)
Yeah. It was a mixed issue. Our programs varied greatly, not on the economics of the program, but how it's split between deposit and fees. We had one of our programs that is more deposit-based, has a much higher deposit that we pay out, ballooned in the first quarter due to insurance payments. You saw a higher funding cost, which will roll off over the next quarter or so. It was about $500 million of deposits that are related to insurance settlements. That will roll off. That was part of the reason you saw a higher deposit cost.
Tim Switzer (VP of Equity Research)
Okay. And so it's safe to assume that's also the reason we saw basically a $600 million increase to average cash on the balance sheet, which also weighed on the NIM?
Damian Kozlowski (President and CEO)
Yeah. That was definitely one of the drivers. We had very good deposit growth. The tax season was extremely strong. 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. There was a lot of tax receipts. It actually had an impact on things like MyPay because people got their tax returns, so they did not take as much of the Fintech loans in February, which reduced our fee income in February. It can be very volatile.
Tim Switzer (VP of Equity Research)
Okay. If we think about the NII and NIM trajectory going forward, the mechanics of it, is it NIM improves in Q2 as those higher cost deposits roll off? NII, I guess, is probably fairly flat plus some growth given loan growth?
Damian Kozlowski (President and CEO)
It should be. Yes. That's exactly correct.
Tim Switzer (VP of Equity Research)
Okay. The deposit cost should move back down kind of in line with that 40% beta once the $500 million?
Damian Kozlowski (President and CEO)
Depending on when those deposits—and there is more than that going on. We are offloading high-cost deposits. We have variability in our deposit base. Some higher-cost deposits, like saving deposits, we have been moving off the balance sheet for some of our programs. That also will help the NIM and lower the deposit cost.
Tim Switzer (VP of Equity Research)
Gotcha. I have another quick question on the take rate on GDV. It looks like it went down a little bit. Were there any one-timers in there, or should we expect that to be a new run rate going forward?
Damian Kozlowski (President and CEO)
No. Once again, that's very volatile. I think you have to look at that over—that's a mixed—once again, it's a mixed issue, quarter-to-quarter. It's, once again, based on—it's hard in the first quarter because it's the anomalous quarter due to the tax receipts. 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. 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. Because of that, it's multiple fees coming from the same programs. It's better to look at it by that 13% number is the way to look at the GDV.
If we had 18% growth and 13% total fee growth for the first two lines in the financial statements, you could keep the credit sponsorship out. That's even additive. Once again, that's the same program, right? For a Chime, you're getting triple layers. We call it the layer cake, but you got triple layers of fees coming from the program. If you look in the past and try to compare it, there weren't these other ancillary services. It's much better to take the first two lines, the card fees and the other fees together versus GDV, and that'll give you the first two fee sources for our larger programs. That's why that's a more relevant measure than it has say five years ago.
Tim Switzer (VP of Equity Research)
Got it. Okay. That's helpful. If I can have one more, please. There's been a lot of disruption in the banking as a service space with some smaller competitors that are looking to exit or pull back at least. There's another competitor exploring strategic alternatives. Has this created any opportunities for Bancorp to maybe acquire new programs or portfolios or entire business lines? What's your approach to that?
Damian Kozlowski (President and CEO)
Yes. We're working with the largest, highest-growth partners. We've been preparing ourselves. We seldom take a—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? Adding product capabilities. I think we have some very exciting things. We think we can sustain this GDV level for multiple years. I think we'll have interesting things to tell the market. Things aren't done until they're done. I think as we add these larger programs, they will be meaningful to the financial statements. When they happen and when they're ready to be announced, we'll either have a press release or a case. We think our current GDV, that 18, 13, is sustainable.
With the enhancement of credit sponsorship, we can think mid-20s is a CAGR of 25% is not out of the question. We are still building other delivery models like embedded finance, which would enhance that additionally and add other credit sponsorship programs. We are preparing ourselves to have expanded relationships with more products and a sustained level of higher GDV, which has a lot of implications. We have to invest in our platform and make it extremely robust. It is systemically important to the financial industry when you have such a big exposure to the largest programs that span 15 different verticals, but span every state of the union and almost every person. We are investing in it. We expect sustained levels of higher GDV growth.
When we get a product or new relationship expansion that's meaningful, we will announce it at the appropriate time.
Tim Switzer (VP of Equity Research)
Got it. Very clear. Thank you, Damian.
Operator (participant)
Thank you. The next question comes from Joe Yanchunis with Raymond James. Please go ahead.
Joe Yanchunis (Analyst)
Good morning.
Damian Kozlowski (President and CEO)
Good morning.
Joe Yanchunis (Analyst)
I just wanted to follow up on some of the commentary you made on your credit sponsorship program. You have four programs that are currently contributing to your growth right now. Just to reiterate, you have three that run solely through fee income and one that provides little NII. Can you reach your 2025 and 2026 year-end targets with just these four programs?
Damian Kozlowski (President and CEO)
Yes. In our plan, there's a difference between our plan and, say, just those four programs plan. In our own budget, it's in the eight, you know, 50 range. The budget of just those four programs is over $1 billion. Yes, the answer is yes. Even if we don't add a program, we'll be able to meet that $1 billion target. We're already well on the way. We're at $571 million at the end of the quarter. The growth we're experiencing is very robust. We think we'll be able to get there even just with those four.
Joe Yanchunis (Analyst)
Perfect. Then shifting gears here, in the prior quarter, you used about a quarter of your 2025 share repurchase authorization. Kind of given the recent dislocation in the stock, should we expect you to lean into the buyback a little more and front-load your repurchase activity for the year?
Damian Kozlowski (President and CEO)
I've mentioned this before, but nothing has been decided. That is subject to board approval and everything else. Our net income kind of target is around the $250 million level. $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. That is why our buyback is $150 million. At that repayment, we're basically at where we want to be on our capital levels. We could refinance that debt or add more. It's doubtful that we just do $100 million. We would do more than that. We would use all those proceeds, depending on the rates in the market and our stock price, 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.
Joe Yanchunis (Analyst)
Got it. Thank you for that. Last one for me here, just kind of going back to the GDV growth. I certainly understand your commentary about it continuing to maintain at these current levels, if not accelerate. Is there any way to kind of look into all this payment volume that you see? Are you able to see any changes in behavior in the consumer in light of the kind of heightened economic uncertainty?
Damian Kozlowski (President and CEO)
Yeah. Our data has been used by even institutions like the Fed. It's so broad to understand activity. The thing I would say is that we're nominally based, not real dollars. Things like inflation—say you have consumer spending go down by 4%, but inflation was 8%. We'd actually have a 4% positive. It's all nominal. A lot of our payment volume is necessary payment volume. It's coming from normal, everyday people doing transactions that are absolutely necessary. They're buying milk or they're going to the theater or whatever it is. Even if consumer spending goes down in a deflationary environment, it would be bad for us. You got that environment and consumer spending went down. That would be very bad for us. What's good for us? Inflation is actually good for our realization of revenue.
You'd have to have unless inflation goes down much lower and consumer spending was down much lower. Remember, our consumer spending is definitely not discretionary. A lot of our spending is necessary. You get a paycheck, and a lot of people are paycheck to paycheck. Our portfolio tends to be more paycheck to paycheck individuals.
Joe Yanchunis (Analyst)
Understood. Thank you for taking my questions.
Damian Kozlowski (President and CEO)
Thank you very much.
Operator (participant)
Thank you. The next question comes from Frank Schiraldi with Piper Sandler. Please go ahead, sir.
Frank Schiraldi (Managing Director)
Yeah. Hey, Damian. Just one follow-up. Just on the OREO property that is going to be or been delayed till May, the closing date of the sale. I know you're supposed to get that deposit in in a couple of days. You mentioned in the release, you talked about a change in ownership, I think, at the buyer. Just kind of wondering your thoughts there. Are you still confident? Could this be—is it more tenuous now that we have a change in ownership of the buyer or just your general thoughts on that closing in May?
Damian Kozlowski (President and CEO)
I don't think so. This was an—they had a change in their group. This is a group that's trying to build a portfolio of assets. This potential, this change in ownership strengthened that group. It didn't take away from that group. They had to work out among themselves through several different filings and negotiations. They are continuing to support the property, and they paid insurance, and they're fixing the—it's been leased up. 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% level now. They only—this is where the property starts making money. Everything's a green light. We've been very flexible with them because they've been a great partner, and they say what they're going to do.
They had this issue, and we wanted to make sure that they're still investing in the property. It is a very good faith situation. We are still expecting the deposit and the close date to be held.
Frank Schiraldi (Managing Director)
Great. Okay. I appreciate it. Thank you.
Operator (participant)
Thank you. There are no further questions at this time. I'll turn the call over to Damian Kozlowski, the Chief Executive Officer. Please go ahead, sir.
Damian Kozlowski (President and CEO)
Thank you, everyone for joining us today. Operator, you can disconnect the call.
Operator (participant)
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.