NASDAQ:TBBK Bancorp Q3 2024 Earnings Report $51.90 +2.43 (+4.91%) Closing price 05/2/2025 04:00 PM EasternExtended Trading$51.92 +0.02 (+0.05%) As of 06:16 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Bancorp EPS ResultsActual EPS$1.04Consensus EPS $1.12Beat/MissMissed by -$0.08One Year Ago EPS$0.92Bancorp Revenue ResultsActual Revenue$125.84 millionExpected Revenue$131.34 millionBeat/MissMissed by -$5.50 millionYoY Revenue GrowthN/ABancorp Announcement DetailsQuarterQ3 2024Date10/24/2024TimeAfter Market ClosesConference Call DateFriday, October 25, 2024Conference Call Time8:00AM ETUpcoming EarningsBancorp's Q2 2025 earnings is scheduled for Thursday, July 24, 2025, with a conference call scheduled at 4:00 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Bancorp Q3 2024 Earnings Call TranscriptProvided by QuartrOctober 25, 2024 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00Good day, and welcome to the Bancorp, Inc. Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. Operator00:00:10Following the prepared remarks, we will open the floor for questions. Please note, today's call will be recorded. And I will be standing by if you should need any assistance. It is now my pleasure to turn the call over to Andres Virasov. Please go ahead. Speaker 100:00:31Thank you, operator. Good morning and thank you for joining us today for The Bancorp's Q3 2024 Financial Results Conference Call. On the call with me today are Damon Kozlowski, Chief Executive Officer and Paul Frenkle, 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. Speaker 100:00:53M. Eastern Time today. The dial in for the replay is 1-eight hundred-eight thirty nine-eleven sixty two. 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, October 25, 2024. Yesterday, we issued our Q3 earnings release and updated investor presentation. Speaker 100:01:14Both 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. In addition, we will be referring to certain non GAAP financial measures during this call. Speaker 100:01:43Additional 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 would like to turn the call over to The Bancorp's Chief Executive Officer, Damian Kozlowski. Damian? Speaker 200:02:07Thank you, Andres. Good morning, everyone. The Bancorp earned $1.04 share in the Q3. Revenue growth was led by our FinTech Solutions Group. GDV growth was 15%, while total fee growth from FinTech payments fees and credit sponsorship fees was 22%. Speaker 200:02:24We continue to grow total credit sponsorship balances, which were $280,000,000 at the quarter end compared to $70,000,000 at the end of the second quarter. We are excited about the prospects for newly added and prospective payments clients and expect our non interest income to reflect their impact in 2025. On the lending side, our substandard multifamily loan assets continue to be elevated. We believe we are at or close to peak in substandard assets and are employing multiple strategies to reduce that number without incurring losses. We also had the portfolio reviewed by an independent third party to validate our internal ratings. Speaker 200:03:02The substandard assets continue to be centered in our 2021 2022 vintage that was impacted by supply delays and a sharp rise in rates. We continue to believe that we will have little to no losses on this portfolio due to the conservative leverage of the loans. Anticipated rate decreases should also aid in reducing the amount of substandard assets. In addition, the Aubrey property in Houston continues to be on track for the December 24 close with our deposit on the property growing from $125,000 to 300 and $75,000 currently. The other lending lines were led by our small business lending with 14% year over year growth. Speaker 200:03:39Moreover, our institutional business continues to stabilize and quarter end balances were essentially flat to prior quarter. In other matters, due to the potential repayment of outstanding senior secured debt of $96,000,000 planned buybacks will be reduced to $150,000,000 in 2025 or $37,500,000 a quarter from a total of $250,000,000 in 24. Our 24 buybacks included a $50,000,000 special buyback in the 2nd quarter. Depending on prevailing rates, we may reissue debt of $100,000,000 or more to replace existing senior debt. In that event, we would likely use all or most of the proceeds to increase our stock buyback. Speaker 200:04:24Also in our financial reporting, we will be breaking out more detailed business segment profitability for the first time. As you will see, the majority of our economics originates from the non interest income and deposit funding generated by our payments ecosystem. The methodology we used was simple. We charged interest expense to the lending businesses using a 3 year average market rate, while our FinTech Payments business received the resulting interest income. Those allocations are shown in the interest allocation line. Speaker 200:04:54The actual cost of our deposits was charged to our FinTech Solutions business as their interest expense. The corporate segment includes our bond portfolio and was charged the actual cost of our deposits as interest expense. Expenses for each business are driven by both direct expenses incurred and allocated expenses based on estimated usage. This methodology better explains how our best in class returns are generated and the central role of our of the Bancorp's FinTech Payments franchise to our profitability. A schedule summarizing this view of our business appears at the end of the press release. Speaker 200:05:29Lastly, we are issuing $25,000,000 preliminary guidance of $5.25 a share supported by our continued double digit growth in FinTech fees and credit sponsorship. Our 2025 guidance does not include the impact of planned stock buybacks of $150,000,000 that I previously mentioned. I now turn the call over to Paul Frankel for more color on the Q3. Paul? Speaker 300:05:53Thank you, Damian. While the Federal Reserve began to reduce rates in September, the purchase of $900,000,000 of long term fixed rate U. S. Government sponsored agency securities in April 2024 significantly reduced exposure to Federal Reserve rate decreases. Additionally, an emphasis on fixed rate loans continues in the company's efforts to optimize its margins. Speaker 300:06:18The majority of the increase in loans compared to June 30, 2024 was comprised of consumer fintech loans. 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 3rd quarter net interest margin of 4.78 percent compared to 4.97 percent for Q2 2024 and reflected $1,600,000 or $1,200,000 after tax of prior period interest reversals on rebel loans either transferred to non accrual or related to loan modifications. Reflecting those rebel prior year prior period interest reversals, net interest income increased 5% in Q3 2024 compared to Q3 2023. Speaker 300:07:17As noted in our last press release, the company examined the sensitivity of its allowance for credit losses to increases or decreases in its REBA loans classified as either special mention or substandard. As a result, a new CECL factor resulted in a $2,000,000 increase in the quarterly provision or $1,500,000 after tax. At September 30, 2024, REV loans classified as special mention and substandard respectively amounted to $84,400,000 $155,400,000 compared to 96,000,000 dollars 80,400,000 at June 30, 2024. Notwithstanding the increase this quarter in loans so classified, the respective weighted average as is and as stabilized loan to values of 77% and 68% based on appraisals performed within the past 12 months continues to provide significant protection against loss. Each classified loan was evaluated for a potential increase in the allowance for credit losses on the basis of the aforementioned third party appraisals of apartment building collateral and again, which was updated and performed in the past 12 months. Speaker 300:08:40Average FinTech Solutions Group deposits for the quarter increased 11 percent to $6,640,000,000 from $6,010,000,000 in Q3 2023. The provision for credit losses was $3,500,000 in Q3 2024 compared to $1,800,000 in Q3 2023. In addition to the aforementioned impact of the new rebel factor, the provision for credit losses in Q3 2024 reflected the impact of $1,300,000 of leasing charge offs. Of those charge offs, dollars 600,000 resulted from transportation and trucking, for which total outstandings amount to $34,000,000 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 value to underlying collateral. The $2,200,000,000 Apartment Bridge Lending Portfolio has a weighted average origination date as is LTV of 70% based on 3rd party appraisals. Speaker 300:09:51Further, the weighted average origination date at stabilized LTV, which measures the estimated value of the apartments after the rehabilitation is complete, may provide even greater protection from losses. Non interest income for Q3 2024 was $32,100,000 which was 20% higher than Q3 2023. 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 year over year and the continued organic growth of long standing client relationships. For the consumer fintech loans noted previously, the income statement reflects the new income statement line item, consumer credit fintech fees, which generated $1,600,000 of quarterly fees. Speaker 300:10:58As previously noted, we believe we will be able to originate loans with higher yields and or fees in the future. Non interest expense for Q3 2024 was $53,300,000 which was 12% higher than Q3 2023. The increase included an 11% increase in salaries and benefits, the $892,000 after tax loss mentioned earlier by Damien and increased other real estate owned expense. Book value per share at quarter end increased 18% to $16.90 compared to $14.36 a year earlier. That reflected the impact of retained earnings and also the impact of the unrealized gains on the securities portfolio, primarily as a result of the 2024 securities purchases. Speaker 300:11:49In 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 believe and consider to be working class apartments at more affordable interest rates in selected states. We believe that our underwriting requirements provide significant protection against loss as objectively supported by LTV ratios based on 3rd party appraisals. Further, SBLOC and IBLOC loans are respectively collateralized by marketable securities in the cash value of life insurance, while SBA loans are either SBA 7 loans that come with significant government related guarantees or SBA 504 loans that are made at 50% to 60% LTVs. Speaker 300:12:51Additional 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 portfolios, payments funding sources and earnings levels may present opportunities to further increase stockholder value, while still prudently maintaining capital levels. Such opportunities include stock repurchases, which are planned to be continued for the remainder of the year with additional repurchases in 2025. I will now turn the call back to Damian. Speaker 200:13:32Thank you, Paul. Operator, could you please open the lines for questions? Operator00:13:38Yes. At this time, the floor is open for your questions. Our first question will come from Frank Schiraldi with Piper Sandler. Please go ahead. Speaker 200:14:02Good morning. Good morning, Frank. Speaker 400:14:05Just wanted to start with, Damian, just I believe I heard you mention a new partnership on the FinTech side. You didn't name the partner. I don't know if that's by design or this is just previously announced. But can you just give a little more color? And if it is a new partner, any guardrails around potential bottom line impact? Speaker 200:14:31So our pipeline is extremely strong right now, even more than I've said in the past. And we're seeing it, and there's been a lot of implementations over the last year, which is continuing to show momentum in our GDV even in this month in October. So nothing to announce. However, we're continuing to expand our long term relationships with new product sets, including credit sponsorship. There's a lot going on there. Speaker 200:15:07And we're in discussions with new partners that want to move to our platform. So it's extremely robust at this time, but nothing to announce. Speaker 300:15:15Okay. Speaker 400:15:16And then just thinking about the 2025 guide and we used to talk about perhaps 15% GDV growth being a historic sort of growth level and maybe being able to exceed that and then the pickup on fees would be something a little less than that. This quarter you put up 15% GDV growth and 20% plus fee growth. So just kind of if you could just your updated thoughts there around just given how strong the pipeline is, are we still thinking 15% plus GDV growth and any color on what that translates to in terms of fees? Speaker 200:15:59So I can give you a couple of insights. These programs take a long time to implement and sometimes they kind of pay off all at once. So if you're looking at our GDV and we were saying we're going to be above trend this year, now this is an estimate and this moves around a lot, but we're experiencing above 20% now GDP growth in the month of October. And we think that you just don't know how that's going to play off, but our transactions tend to be base transactions like payments that are that happen continually for the customers of the applications, the program managers. So it seems once we have a bump up in that volume, it doesn't go back down again. Speaker 200:16:50So we're experiencing that now. I would think that 15% number plus is also a good number for next year, and could be a bit higher, more towards the 20% range, but we'll have to see it can be very volatile. Speaker 400:17:08Okay. And then just on the Rebel book, given that just in the quarter, obviously, rates fell, they fell significantly in the middle part of the curve, kind of bounced back a bit. But just curious given where rates were, what sort of trends you saw in the quarter in terms of balances moving to permanent financing moving off the balance sheet off your balance sheet? And any did that accelerate? Any numbers you can put behind that? Speaker 200:17:41I don't we really haven't it's not been enough yet, I think. It's clearly that there is building liquidity in this niche with the forward look on rates. So the market was a bit stalled for a while with new deals and that's starting now to unclog a bit. So there is forming pools of capital. So when we're looking to whether it was the Aubrey or with certain loan modifications we've done on the Rebel book, there's just more capital available. Speaker 200:18:15The market conditions have definitely improved as well as new investors coming in or existing investors who look to add to their portfolio. So the environment that we had in 2021 2022 is kind of on the that is something that's been repaired a lot in the marketplace. People have a much better perspective on rent growth and cap rates, all the things that you want in a good market and that's unclog the market a bit. Speaker 400:18:48Okay. And then just lastly on that front, you talked in the release about the expectation. I think the wording was nearing peak in terms of criticized balances. And just trying to think through timing there. I mean, if it's late 2021, early 2022 vintage, these things come up 3 year initial term, would seem to me that maybe early 2025 would be a point you could expect maybe a peak and criticize? Speaker 400:19:20Or is it that the rates coming down here in the near term have you feeling better about maybe peak earlier than that? Just trying to think through that. Thanks. Speaker 200:19:31Yes. So we really believe we're at our near peak and that's why we had a 3rd party come in to validate and look at all the loans and ensure that we weren't being too aggressive in downgrades and that it was right where it should be at the standard of the market. We have a plan in place. We believe that we can reduce it in the next two quarters. So we have identified properties working with the sponsors. Speaker 200:20:01We've modified certain loans and we look to we're looking to offload or have those loans financed. So we're hoping to make, first of all, we think we're at the peak, near the peak. We think there won't be a lot more, and we think we can reduce that balance number on the substandard criticizing classified assets over the next two quarters. If you look to the full resolution of that group of loans, that will take a little bit longer, but that will be throughout 2025 and by the end of 2025, we should have all or most of those loans refinanced. Speaker 400:20:46Great. Okay. All right. Thanks for the color. Operator00:20:50Thank you. Our next question will come from David Feaster with Raymond James. Please go ahead. Speaker 200:20:56Hi. Good morning, everybody. Hey. How's it going, David? Good morning, David. Speaker 500:21:01I wanted to get a sense I Speaker 200:21:04want to touch on the credit sponsorship, right? Speaker 500:21:06I mean, that's clearly gained some traction. I'm curious how that rollout's gone. And your sense your initial sense is you're starting to ramp that up of the infrastructure that you've built. And then just what's the pipeline like, the growth outlook you're thinking? And could you remind us of the yields on that production as well? Speaker 200:21:26Okay. So, right now, we're working with multiple partners to implement new programs. I would say there are 3 that are well known providers that are looking to implement their programs at the Bancorp. The ramp up is primarily with Chime now in 4 product areas, and it will probably be $400,000,000 ish, we're thinking, by the end of the year in footings. Now the velocity of those loans is very high. Speaker 200:22:07So we've had about a $1,600,000,000 dollars actually lent through even though the balances are not very high. It's the repayment and recycling of those loans that's very quick and that's why those fees grew so quickly. So the end of next year, with depending on the time of implementation, we expect the balances to be around $900,000,000 to $1,000,000,000 by the end of next year. And it does look like the growth after that could be substantial. We're not putting a number on it, but we're talking about a doubling of those balances, we think, at the minimum by the end of 'twenty five. Speaker 200:22:45So that obviously would generate a lot of spread and fee revenue because of the velocity of the loans. So it's like that's a good example to show that our guidance, if you look at our guidance for this year, right, there's a lot of momentum in that business that we think will be able to meet our full year guidance with our Q4, even though our run rate right now, even though you take out those one time items we mentioned is more like $111,000,000 So we do we definitely have a $1,000,000 to $2,000,000 opportunity just in that bucket and the credit sponsorship in the 4th quarter. Are we haven't we just finished our full implementation of something we mentioned before, which is the rapid funds transfer balances, RFT balances for Block that we've mentioned in the past. That is a $1,000,000 to $2,000,000 opportunity. And our GDV, as I mentioned before, is significantly above trend. Speaker 200:23:49All this is volatile. So these are just estimates and that is a $1,000,000 to $2,000,000 opportunity. So you have a situation where if you look at that $1.11 that's about $0.07 So you're ready at 1.18 for the Q4. But then because our deposit balances are much higher than expected, we're able to fund our bond purchases without any borrowings right now. So that's another $1,000,000 to $2,000,000 opportunity. Speaker 200:24:20That's how we so this area, the FinTech space is showing rapid above trend growth with new fee sources, and it's very encouraging. Speaker 500:24:33Okay. That's helpful. And maybe to some of the points you just made, I mean, you've been active managing rate sensitivity ahead of potential cuts. Obviously, there's prospects more on the horizon. Speaker 100:24:43I'm curious, how do Speaker 500:24:44you think about the margin trajectory looking forward, assuming the forward curve comes to fruition, contemplating better yields from credit sponsorship? And just what rate outlooks embedded into your 2025 guide? Speaker 200:24:57So, our asset sensitivity has continued to decline. We moved it from 8 to under 2 with the bond purchases and putting on fixed rate exposure. So our NIM for 2025 should be very stable. So you have to add back some of the reversals we had in the Q3. So the NIM should be in the high 4s, probably in the 4.90 to 5 range for 25. Speaker 200:25:29And depending on we don't think it's the Goldman forecast of $3,000,000 to $3,200,000,000 We still think the Fed will be around the 4% range on Fed funds. If that happens and we continue to grow our deposit sources and the other fee income, it's fairly easy to get to that $525,000,000 number we put on the table for $25,000,000 Okay. Speaker 500:25:52And then last one, I just saw that loss from the transaction processing delay. I was just hoping you could touch on what drove that and just curious what Speaker 600:26:03that was. Speaker 200:26:04Yes, there was an application glitch, where in those situations we have to rename files and do it manually. And because of a naming convention and a whole bunch of serendipitous things that we've all put in multiple controls to prevent, we had a loss on return like non sufficient fund files, 4 of them. And so they got delayed. And to avoid confusion, working with our partner, we decided to share the cost and not submit the files late, which might have caused consumer confusion. So this is, we believe, a one time event, very a whole list of serendipitous events happened, and we've closed those gaps. Speaker 200:26:58And we've even changed the naming convention to ensure that can't happen again if there's another application failure. So this is this hasn't happened before. I've been here 8 years. We've significantly improved the platform. It's one of those things, and we don't it's not systemic. Speaker 500:27:18Okay. That's helpful. Thank you. Operator00:27:22Thank you. Our next question will come from Tim Switzer with KBW. Please go ahead. Speaker 600:27:28Hey, good morning guys. Thank you for taking my questions. Good morning. I had a quick follow-up. I had a quick follow-up on the NIM trajectory. Speaker 600:27:38With the Fed rate cuts, your deposits kind of repriced immediately almost with the contractual beta basically that's near 60%. So should we see maybe margin expansion initially before then the margin kind of, I guess, moderates and comes back down a little bit as we start to see pressure from the loan repricing? How should we think about that over the course of the year? Or is it just stable every quarter? Speaker 200:28:06Well, it's hard to know because, for example, in the where we had fixed rate exposure that we put on during the pandemic, for example, in our activities like SBA, but leases that were done at the beginning of the low interest rate or at the end of the low interest environment. So that's burning off. So you are getting higher rates in some of our businesses. And then let's say in some new rebel loans, that would actually be lower rates. So it's hard to tell. Speaker 200:28:40I think it will be basically a wash. The real game changer is non interest bearing deposits. So as I said, the thing that we can't predict is our deposit levels, even though they're very they're well above where our estimates were at the beginning of the year. So that's helping things like the funding of the bond purchases. And then also, obviously, the amount of areas where we don't pay that share are growing. Speaker 200:29:14So I think it will be basically a wash. I don't think it will I think you're going to stay in that 4.90 to 5 range. I don't think there's going to be wild swings unless we have a one time event or like we've had a reversal in the previous and last quarter. So it will be I think it will be fairly stable. It's hard to predict. Speaker 200:29:33It might move around a lot, but it's there's just there's ins and outs basically. So you can't really give a good estimate. So we've estimated that it's going to be fairly flat. Speaker 300:29:44Okay. Yes, that's helpful. Speaker 600:29:47And then I was looking at your regulatory ratios. Your TCE went up over 50 basis points, but your regulatory ratios went down a little bit. Was there a change in like the risk weighting of your assets? And was that related to some of the credit migration? Or can you guys walk us through that? Speaker 200:30:04I'll give that to Paul. Paul, would you like to Speaker 300:30:08opine? Yes, sure. So, we do have 100%, like for instance the consumer, the $280,000,000 of consumer loans, those go in at 1 100%. So there was some movement as you suggested, but really the changes, the quarterly changes were really kind of minimal. We monitor the capital and we do those projections quarter to quarter. Speaker 300:30:38And they won't they're not going to change meaningfully, and because we're generating so much earnings, like we have that scheduled out, so that we'll maintain those ratios and that's taken into consideration when we estimate the guidance. So it won't have any impact. Okay. Speaker 600:31:03And I'm curious, this is a question I've been getting from a few other investors. But why did you guys decide like now was the time to add to the rebel reserve? If we're nearing kind of peak classified loans? What was the thinking then, maybe a little more explanation on what drove that? Speaker 300:31:22Well, that's exactly why, because it's really theoretical. The current CECL stands for current expected credit losses. So we don't really expect any and that's based primarily on the LTVs of the as is LTVs and the as stabilized LTVs. And so we don't really expect any losses on the portfolio and that kind of is difficult to reserve against when you don't really have any objective means of doing so. But to the extent you do have an objective means, which is the level of classified assets, then theory would suggest you would add some level of reserve. Speaker 300:32:19So we're being disciplined. We're staying with the theory. But on the basis of the strength of the LTV, it's a modest increase, which by the way, as the level of substandard loans and special mention loans goes down, that actually gets you have to consider that that should get reversed. But it really is a theoretical accounting requirement and we're staying disciplined to it. Speaker 400:32:52Okay. Okay. Speaker 600:32:53And we appreciate all the updated credit metrics you provided in the release. Is there any kind of like update you can provide on the loans that have modifications and if you expect that to be peaking as well. And it sounds like you expect a lot of them to be resolved over the course of 2025. Speaker 300:33:12Yes. We do expect that the modifications are peaking. We have multiple levels of review. We have the department itself, based on its detailed knowledge of each loan, had to send a quarterly certification to us, the executive management and a whole host of control parties that, identifies all the problem loans. On top of that, we have a layer of credit review, loan review. Speaker 300:33:46And as Damian mentioned earlier, this quarter, because we do have an elevated amount of substandard loans, we called in a third yet a third party to review all the to view a very significant amount of the loans just to make sure that they had all been identified. So that really is the basis of why we think that the loans with issues have been identified and we think they're peaking. Speaker 600:34:17Okay. And if I could ask one more, please. Can you guys explain what's all captured in that $1,600,000 of consumer credit fintech fees that like interchange? And then have you guys started selling any for gain on sale revenue at all? Or is that in your plans? Speaker 200:34:35It is we haven't sold any gain on sale. So this is all on balance sheet. And it's and in this case, it's mostly fees for getting the money early. So believe it or not, while we get a spread on the loan, our business partner is giving free advances of which the source of income is actually if somebody wants it, even though they can get it in 2 days or 3 days at the most, They want it immediately. And so they it could be a $50 they want it and they pay a fee based on getting that money early. Speaker 200:35:15And because it's once again, this is a kind of a rapid loan. And they need the money at that point, and so they're willing to pay a small fee in order to get that money. And that's the majority of those fees is that $1,600,000 is the early basically getting the money a little bit early, and the client the customer is willing to pay a small fee to get that. Speaker 300:35:41And we also have secured yes, yes, we also have secured credit cards and while you don't see fees, fee income for that, that benefit to the bank is significantly reflected in greater deposits and lower cost of funds. Speaker 600:36:02Okay. And how do you guys see the composition of that revenue changing over time? Speaker 200:36:07Well, it will change because the partners that were will there be an expansion of these type of we have kind of 4 product types now, kind of variations of credit like products with one of our partners Chime. But our new partners that we're implementing will need to or have the business model to distribute the loans. We will hold assets for 30 to 3 to 30 days and then they will be distributed to investors. Now there will be also certain assets that we like or depending on the program, we will hold 5% or 10% of those assets longer term. And those are very high spread loans, obviously, compared to our traditional lending. Speaker 200:36:59So there will be 3 types, right? Secured on balance sheet, heavy fees, there will be fully distributed 3 to 30 day underwriting risk, but once again, there will be small spread, but a lot of fees, a lot of velocity, and then there will be a small portion of multiple different programs that will be on balance sheet. So it will be very diversified. Our future look, as we said to the market, in 5 years, but we think it's going to be sooner now because the balances, we think there's just such a large pipeline and the programs that we've already implemented are going so well that we want 15, 20 programs. It will look similar to our banking as a service on the debit deposit side. Speaker 200:37:44It will be diversified with the 3 business models that have already detailed. But in this case, you also get all the payments activity too. So this activity is high velocity, high fees and when we hold it, higher rates off the back of our banking as a service debit infrastructure. So it's extremely profitable business. Speaker 600:38:10That's great. Appreciate all the detail. Thanks for taking all the questions. Operator00:38:16Thank you. At this time, there are no further questions in queue. I will turn the call back to Damian Kozlowski for any additional or closing remarks. Speaker 200:38:25Thank you everyone for joining us today. Have a great day. And operator, could you please disconnect the call? Operator00:38:34Yes. This does conclude the Bancorp Third Quarter 2024 earnings conference call. Please disconnect your line at this time and have a wonderful day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallBancorp Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Bancorp Earnings HeadlinesTBBK Investors Have Opportunity to Lead The Bancorp, Inc. Securities Fraud LawsuitMay 3 at 9:00 AM | prnewswire.comTBBK FRAUD NOTICE: The Bancorp, Inc. (NASDAQ:TBBK) Investors may have been affected by Fraud -- Contact BFA Law by May 16 Court DeadlineMay 3 at 7:18 AM | globenewswire.comBuffett’s favorite chart just hit 209% – here’s what that means for goldA Historic Gold Announcement Is About to Rock Wall Street For months, sharp-eyed analysts have watched the quiet buildup behind the scenes. Now, in just days, the floodgates are set to open. The greatest investor of all time is about to validate what Garrett Goggin has been saying for months: Gold is entering a once-in-a-generation mania. Front-running Buffett has never been more urgent — and four tiny miners could be your ticket to 100X gains.May 5, 2025 | Golden Portfolio (Ad)THE BANCORP SHAREHOLDER ALERT: CLAIMSFILER REMINDS INVESTORS WITH LOSSES IN EXCESS OF $100,000 of Lead Plaintiff Deadline in Class Action Lawsuit Against The Bancorp, Inc. - TBBKMay 2 at 10:50 PM | prnewswire.comThe Bancorp, Inc. Investors: Please contact the Portnoy Law Firm to recover your losses; May 16, 2025 Deadline to file Lead Plaintiff MotionMay 1, 2025 | globenewswire.comBancorp (TBBK) Increases Provision For Consumer Fintech Loan Credit Losses, Acknowledges Internal Control Weaknesses– Hagens BermanMay 1, 2025 | globenewswire.comSee More Bancorp Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Bancorp? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Bancorp and other key companies, straight to your email. Email Address About BancorpBancorp (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.View Bancorp ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Amazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2Palantir Earnings: 1 Bullish Signal and 1 Area of ConcernVisa Q2 Earnings Top Forecasts, Adds $30B Buyback PlanMicrosoft Crushes Earnings, What’s Next for MSFT Stock?Qualcomm's Earnings: 2 Reasons to Buy, 1 to Stay AwayAMD Stock Signals Strong Buy Ahead of Earnings Upcoming Earnings Advanced Micro Devices (5/6/2025)American Electric Power (5/6/2025)Constellation Energy (5/6/2025)Marriott International (5/6/2025)Energy Transfer (5/6/2025)Mplx (5/6/2025)Brookfield Asset Management (5/6/2025)Arista Networks (5/6/2025)Duke Energy (5/6/2025)Zoetis (5/6/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 7 speakers on the call. Operator00:00:00Good day, and welcome to the Bancorp, Inc. Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. Operator00:00:10Following the prepared remarks, we will open the floor for questions. Please note, today's call will be recorded. And I will be standing by if you should need any assistance. It is now my pleasure to turn the call over to Andres Virasov. Please go ahead. Speaker 100:00:31Thank you, operator. Good morning and thank you for joining us today for The Bancorp's Q3 2024 Financial Results Conference Call. On the call with me today are Damon Kozlowski, Chief Executive Officer and Paul Frenkle, 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. Speaker 100:00:53M. Eastern Time today. The dial in for the replay is 1-eight hundred-eight thirty nine-eleven sixty two. 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, October 25, 2024. Yesterday, we issued our Q3 earnings release and updated investor presentation. Speaker 100:01:14Both 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. In addition, we will be referring to certain non GAAP financial measures during this call. Speaker 100:01:43Additional 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 would like to turn the call over to The Bancorp's Chief Executive Officer, Damian Kozlowski. Damian? Speaker 200:02:07Thank you, Andres. Good morning, everyone. The Bancorp earned $1.04 share in the Q3. Revenue growth was led by our FinTech Solutions Group. GDV growth was 15%, while total fee growth from FinTech payments fees and credit sponsorship fees was 22%. Speaker 200:02:24We continue to grow total credit sponsorship balances, which were $280,000,000 at the quarter end compared to $70,000,000 at the end of the second quarter. We are excited about the prospects for newly added and prospective payments clients and expect our non interest income to reflect their impact in 2025. On the lending side, our substandard multifamily loan assets continue to be elevated. We believe we are at or close to peak in substandard assets and are employing multiple strategies to reduce that number without incurring losses. We also had the portfolio reviewed by an independent third party to validate our internal ratings. Speaker 200:03:02The substandard assets continue to be centered in our 2021 2022 vintage that was impacted by supply delays and a sharp rise in rates. We continue to believe that we will have little to no losses on this portfolio due to the conservative leverage of the loans. Anticipated rate decreases should also aid in reducing the amount of substandard assets. In addition, the Aubrey property in Houston continues to be on track for the December 24 close with our deposit on the property growing from $125,000 to 300 and $75,000 currently. The other lending lines were led by our small business lending with 14% year over year growth. Speaker 200:03:39Moreover, our institutional business continues to stabilize and quarter end balances were essentially flat to prior quarter. In other matters, due to the potential repayment of outstanding senior secured debt of $96,000,000 planned buybacks will be reduced to $150,000,000 in 2025 or $37,500,000 a quarter from a total of $250,000,000 in 24. Our 24 buybacks included a $50,000,000 special buyback in the 2nd quarter. Depending on prevailing rates, we may reissue debt of $100,000,000 or more to replace existing senior debt. In that event, we would likely use all or most of the proceeds to increase our stock buyback. Speaker 200:04:24Also in our financial reporting, we will be breaking out more detailed business segment profitability for the first time. As you will see, the majority of our economics originates from the non interest income and deposit funding generated by our payments ecosystem. The methodology we used was simple. We charged interest expense to the lending businesses using a 3 year average market rate, while our FinTech Payments business received the resulting interest income. Those allocations are shown in the interest allocation line. Speaker 200:04:54The actual cost of our deposits was charged to our FinTech Solutions business as their interest expense. The corporate segment includes our bond portfolio and was charged the actual cost of our deposits as interest expense. Expenses for each business are driven by both direct expenses incurred and allocated expenses based on estimated usage. This methodology better explains how our best in class returns are generated and the central role of our of the Bancorp's FinTech Payments franchise to our profitability. A schedule summarizing this view of our business appears at the end of the press release. Speaker 200:05:29Lastly, we are issuing $25,000,000 preliminary guidance of $5.25 a share supported by our continued double digit growth in FinTech fees and credit sponsorship. Our 2025 guidance does not include the impact of planned stock buybacks of $150,000,000 that I previously mentioned. I now turn the call over to Paul Frankel for more color on the Q3. Paul? Speaker 300:05:53Thank you, Damian. While the Federal Reserve began to reduce rates in September, the purchase of $900,000,000 of long term fixed rate U. S. Government sponsored agency securities in April 2024 significantly reduced exposure to Federal Reserve rate decreases. Additionally, an emphasis on fixed rate loans continues in the company's efforts to optimize its margins. Speaker 300:06:18The majority of the increase in loans compared to June 30, 2024 was comprised of consumer fintech loans. 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 3rd quarter net interest margin of 4.78 percent compared to 4.97 percent for Q2 2024 and reflected $1,600,000 or $1,200,000 after tax of prior period interest reversals on rebel loans either transferred to non accrual or related to loan modifications. Reflecting those rebel prior year prior period interest reversals, net interest income increased 5% in Q3 2024 compared to Q3 2023. Speaker 300:07:17As noted in our last press release, the company examined the sensitivity of its allowance for credit losses to increases or decreases in its REBA loans classified as either special mention or substandard. As a result, a new CECL factor resulted in a $2,000,000 increase in the quarterly provision or $1,500,000 after tax. At September 30, 2024, REV loans classified as special mention and substandard respectively amounted to $84,400,000 $155,400,000 compared to 96,000,000 dollars 80,400,000 at June 30, 2024. Notwithstanding the increase this quarter in loans so classified, the respective weighted average as is and as stabilized loan to values of 77% and 68% based on appraisals performed within the past 12 months continues to provide significant protection against loss. Each classified loan was evaluated for a potential increase in the allowance for credit losses on the basis of the aforementioned third party appraisals of apartment building collateral and again, which was updated and performed in the past 12 months. Speaker 300:08:40Average FinTech Solutions Group deposits for the quarter increased 11 percent to $6,640,000,000 from $6,010,000,000 in Q3 2023. The provision for credit losses was $3,500,000 in Q3 2024 compared to $1,800,000 in Q3 2023. In addition to the aforementioned impact of the new rebel factor, the provision for credit losses in Q3 2024 reflected the impact of $1,300,000 of leasing charge offs. Of those charge offs, dollars 600,000 resulted from transportation and trucking, for which total outstandings amount to $34,000,000 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 value to underlying collateral. The $2,200,000,000 Apartment Bridge Lending Portfolio has a weighted average origination date as is LTV of 70% based on 3rd party appraisals. Speaker 300:09:51Further, the weighted average origination date at stabilized LTV, which measures the estimated value of the apartments after the rehabilitation is complete, may provide even greater protection from losses. Non interest income for Q3 2024 was $32,100,000 which was 20% higher than Q3 2023. 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 year over year and the continued organic growth of long standing client relationships. For the consumer fintech loans noted previously, the income statement reflects the new income statement line item, consumer credit fintech fees, which generated $1,600,000 of quarterly fees. Speaker 300:10:58As previously noted, we believe we will be able to originate loans with higher yields and or fees in the future. Non interest expense for Q3 2024 was $53,300,000 which was 12% higher than Q3 2023. The increase included an 11% increase in salaries and benefits, the $892,000 after tax loss mentioned earlier by Damien and increased other real estate owned expense. Book value per share at quarter end increased 18% to $16.90 compared to $14.36 a year earlier. That reflected the impact of retained earnings and also the impact of the unrealized gains on the securities portfolio, primarily as a result of the 2024 securities purchases. Speaker 300:11:49In 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 believe and consider to be working class apartments at more affordable interest rates in selected states. We believe that our underwriting requirements provide significant protection against loss as objectively supported by LTV ratios based on 3rd party appraisals. Further, SBLOC and IBLOC loans are respectively collateralized by marketable securities in the cash value of life insurance, while SBA loans are either SBA 7 loans that come with significant government related guarantees or SBA 504 loans that are made at 50% to 60% LTVs. Speaker 300:12:51Additional 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 portfolios, payments funding sources and earnings levels may present opportunities to further increase stockholder value, while still prudently maintaining capital levels. Such opportunities include stock repurchases, which are planned to be continued for the remainder of the year with additional repurchases in 2025. I will now turn the call back to Damian. Speaker 200:13:32Thank you, Paul. Operator, could you please open the lines for questions? Operator00:13:38Yes. At this time, the floor is open for your questions. Our first question will come from Frank Schiraldi with Piper Sandler. Please go ahead. Speaker 200:14:02Good morning. Good morning, Frank. Speaker 400:14:05Just wanted to start with, Damian, just I believe I heard you mention a new partnership on the FinTech side. You didn't name the partner. I don't know if that's by design or this is just previously announced. But can you just give a little more color? And if it is a new partner, any guardrails around potential bottom line impact? Speaker 200:14:31So our pipeline is extremely strong right now, even more than I've said in the past. And we're seeing it, and there's been a lot of implementations over the last year, which is continuing to show momentum in our GDV even in this month in October. So nothing to announce. However, we're continuing to expand our long term relationships with new product sets, including credit sponsorship. There's a lot going on there. Speaker 200:15:07And we're in discussions with new partners that want to move to our platform. So it's extremely robust at this time, but nothing to announce. Speaker 300:15:15Okay. Speaker 400:15:16And then just thinking about the 2025 guide and we used to talk about perhaps 15% GDV growth being a historic sort of growth level and maybe being able to exceed that and then the pickup on fees would be something a little less than that. This quarter you put up 15% GDV growth and 20% plus fee growth. So just kind of if you could just your updated thoughts there around just given how strong the pipeline is, are we still thinking 15% plus GDV growth and any color on what that translates to in terms of fees? Speaker 200:15:59So I can give you a couple of insights. These programs take a long time to implement and sometimes they kind of pay off all at once. So if you're looking at our GDV and we were saying we're going to be above trend this year, now this is an estimate and this moves around a lot, but we're experiencing above 20% now GDP growth in the month of October. And we think that you just don't know how that's going to play off, but our transactions tend to be base transactions like payments that are that happen continually for the customers of the applications, the program managers. So it seems once we have a bump up in that volume, it doesn't go back down again. Speaker 200:16:50So we're experiencing that now. I would think that 15% number plus is also a good number for next year, and could be a bit higher, more towards the 20% range, but we'll have to see it can be very volatile. Speaker 400:17:08Okay. And then just on the Rebel book, given that just in the quarter, obviously, rates fell, they fell significantly in the middle part of the curve, kind of bounced back a bit. But just curious given where rates were, what sort of trends you saw in the quarter in terms of balances moving to permanent financing moving off the balance sheet off your balance sheet? And any did that accelerate? Any numbers you can put behind that? Speaker 200:17:41I don't we really haven't it's not been enough yet, I think. It's clearly that there is building liquidity in this niche with the forward look on rates. So the market was a bit stalled for a while with new deals and that's starting now to unclog a bit. So there is forming pools of capital. So when we're looking to whether it was the Aubrey or with certain loan modifications we've done on the Rebel book, there's just more capital available. Speaker 200:18:15The market conditions have definitely improved as well as new investors coming in or existing investors who look to add to their portfolio. So the environment that we had in 2021 2022 is kind of on the that is something that's been repaired a lot in the marketplace. People have a much better perspective on rent growth and cap rates, all the things that you want in a good market and that's unclog the market a bit. Speaker 400:18:48Okay. And then just lastly on that front, you talked in the release about the expectation. I think the wording was nearing peak in terms of criticized balances. And just trying to think through timing there. I mean, if it's late 2021, early 2022 vintage, these things come up 3 year initial term, would seem to me that maybe early 2025 would be a point you could expect maybe a peak and criticize? Speaker 400:19:20Or is it that the rates coming down here in the near term have you feeling better about maybe peak earlier than that? Just trying to think through that. Thanks. Speaker 200:19:31Yes. So we really believe we're at our near peak and that's why we had a 3rd party come in to validate and look at all the loans and ensure that we weren't being too aggressive in downgrades and that it was right where it should be at the standard of the market. We have a plan in place. We believe that we can reduce it in the next two quarters. So we have identified properties working with the sponsors. Speaker 200:20:01We've modified certain loans and we look to we're looking to offload or have those loans financed. So we're hoping to make, first of all, we think we're at the peak, near the peak. We think there won't be a lot more, and we think we can reduce that balance number on the substandard criticizing classified assets over the next two quarters. If you look to the full resolution of that group of loans, that will take a little bit longer, but that will be throughout 2025 and by the end of 2025, we should have all or most of those loans refinanced. Speaker 400:20:46Great. Okay. All right. Thanks for the color. Operator00:20:50Thank you. Our next question will come from David Feaster with Raymond James. Please go ahead. Speaker 200:20:56Hi. Good morning, everybody. Hey. How's it going, David? Good morning, David. Speaker 500:21:01I wanted to get a sense I Speaker 200:21:04want to touch on the credit sponsorship, right? Speaker 500:21:06I mean, that's clearly gained some traction. I'm curious how that rollout's gone. And your sense your initial sense is you're starting to ramp that up of the infrastructure that you've built. And then just what's the pipeline like, the growth outlook you're thinking? And could you remind us of the yields on that production as well? Speaker 200:21:26Okay. So, right now, we're working with multiple partners to implement new programs. I would say there are 3 that are well known providers that are looking to implement their programs at the Bancorp. The ramp up is primarily with Chime now in 4 product areas, and it will probably be $400,000,000 ish, we're thinking, by the end of the year in footings. Now the velocity of those loans is very high. Speaker 200:22:07So we've had about a $1,600,000,000 dollars actually lent through even though the balances are not very high. It's the repayment and recycling of those loans that's very quick and that's why those fees grew so quickly. So the end of next year, with depending on the time of implementation, we expect the balances to be around $900,000,000 to $1,000,000,000 by the end of next year. And it does look like the growth after that could be substantial. We're not putting a number on it, but we're talking about a doubling of those balances, we think, at the minimum by the end of 'twenty five. Speaker 200:22:45So that obviously would generate a lot of spread and fee revenue because of the velocity of the loans. So it's like that's a good example to show that our guidance, if you look at our guidance for this year, right, there's a lot of momentum in that business that we think will be able to meet our full year guidance with our Q4, even though our run rate right now, even though you take out those one time items we mentioned is more like $111,000,000 So we do we definitely have a $1,000,000 to $2,000,000 opportunity just in that bucket and the credit sponsorship in the 4th quarter. Are we haven't we just finished our full implementation of something we mentioned before, which is the rapid funds transfer balances, RFT balances for Block that we've mentioned in the past. That is a $1,000,000 to $2,000,000 opportunity. And our GDV, as I mentioned before, is significantly above trend. Speaker 200:23:49All this is volatile. So these are just estimates and that is a $1,000,000 to $2,000,000 opportunity. So you have a situation where if you look at that $1.11 that's about $0.07 So you're ready at 1.18 for the Q4. But then because our deposit balances are much higher than expected, we're able to fund our bond purchases without any borrowings right now. So that's another $1,000,000 to $2,000,000 opportunity. Speaker 200:24:20That's how we so this area, the FinTech space is showing rapid above trend growth with new fee sources, and it's very encouraging. Speaker 500:24:33Okay. That's helpful. And maybe to some of the points you just made, I mean, you've been active managing rate sensitivity ahead of potential cuts. Obviously, there's prospects more on the horizon. Speaker 100:24:43I'm curious, how do Speaker 500:24:44you think about the margin trajectory looking forward, assuming the forward curve comes to fruition, contemplating better yields from credit sponsorship? And just what rate outlooks embedded into your 2025 guide? Speaker 200:24:57So, our asset sensitivity has continued to decline. We moved it from 8 to under 2 with the bond purchases and putting on fixed rate exposure. So our NIM for 2025 should be very stable. So you have to add back some of the reversals we had in the Q3. So the NIM should be in the high 4s, probably in the 4.90 to 5 range for 25. Speaker 200:25:29And depending on we don't think it's the Goldman forecast of $3,000,000 to $3,200,000,000 We still think the Fed will be around the 4% range on Fed funds. If that happens and we continue to grow our deposit sources and the other fee income, it's fairly easy to get to that $525,000,000 number we put on the table for $25,000,000 Okay. Speaker 500:25:52And then last one, I just saw that loss from the transaction processing delay. I was just hoping you could touch on what drove that and just curious what Speaker 600:26:03that was. Speaker 200:26:04Yes, there was an application glitch, where in those situations we have to rename files and do it manually. And because of a naming convention and a whole bunch of serendipitous things that we've all put in multiple controls to prevent, we had a loss on return like non sufficient fund files, 4 of them. And so they got delayed. And to avoid confusion, working with our partner, we decided to share the cost and not submit the files late, which might have caused consumer confusion. So this is, we believe, a one time event, very a whole list of serendipitous events happened, and we've closed those gaps. Speaker 200:26:58And we've even changed the naming convention to ensure that can't happen again if there's another application failure. So this is this hasn't happened before. I've been here 8 years. We've significantly improved the platform. It's one of those things, and we don't it's not systemic. Speaker 500:27:18Okay. That's helpful. Thank you. Operator00:27:22Thank you. Our next question will come from Tim Switzer with KBW. Please go ahead. Speaker 600:27:28Hey, good morning guys. Thank you for taking my questions. Good morning. I had a quick follow-up. I had a quick follow-up on the NIM trajectory. Speaker 600:27:38With the Fed rate cuts, your deposits kind of repriced immediately almost with the contractual beta basically that's near 60%. So should we see maybe margin expansion initially before then the margin kind of, I guess, moderates and comes back down a little bit as we start to see pressure from the loan repricing? How should we think about that over the course of the year? Or is it just stable every quarter? Speaker 200:28:06Well, it's hard to know because, for example, in the where we had fixed rate exposure that we put on during the pandemic, for example, in our activities like SBA, but leases that were done at the beginning of the low interest rate or at the end of the low interest environment. So that's burning off. So you are getting higher rates in some of our businesses. And then let's say in some new rebel loans, that would actually be lower rates. So it's hard to tell. Speaker 200:28:40I think it will be basically a wash. The real game changer is non interest bearing deposits. So as I said, the thing that we can't predict is our deposit levels, even though they're very they're well above where our estimates were at the beginning of the year. So that's helping things like the funding of the bond purchases. And then also, obviously, the amount of areas where we don't pay that share are growing. Speaker 200:29:14So I think it will be basically a wash. I don't think it will I think you're going to stay in that 4.90 to 5 range. I don't think there's going to be wild swings unless we have a one time event or like we've had a reversal in the previous and last quarter. So it will be I think it will be fairly stable. It's hard to predict. Speaker 200:29:33It might move around a lot, but it's there's just there's ins and outs basically. So you can't really give a good estimate. So we've estimated that it's going to be fairly flat. Speaker 300:29:44Okay. Yes, that's helpful. Speaker 600:29:47And then I was looking at your regulatory ratios. Your TCE went up over 50 basis points, but your regulatory ratios went down a little bit. Was there a change in like the risk weighting of your assets? And was that related to some of the credit migration? Or can you guys walk us through that? Speaker 200:30:04I'll give that to Paul. Paul, would you like to Speaker 300:30:08opine? Yes, sure. So, we do have 100%, like for instance the consumer, the $280,000,000 of consumer loans, those go in at 1 100%. So there was some movement as you suggested, but really the changes, the quarterly changes were really kind of minimal. We monitor the capital and we do those projections quarter to quarter. Speaker 300:30:38And they won't they're not going to change meaningfully, and because we're generating so much earnings, like we have that scheduled out, so that we'll maintain those ratios and that's taken into consideration when we estimate the guidance. So it won't have any impact. Okay. Speaker 600:31:03And I'm curious, this is a question I've been getting from a few other investors. But why did you guys decide like now was the time to add to the rebel reserve? If we're nearing kind of peak classified loans? What was the thinking then, maybe a little more explanation on what drove that? Speaker 300:31:22Well, that's exactly why, because it's really theoretical. The current CECL stands for current expected credit losses. So we don't really expect any and that's based primarily on the LTVs of the as is LTVs and the as stabilized LTVs. And so we don't really expect any losses on the portfolio and that kind of is difficult to reserve against when you don't really have any objective means of doing so. But to the extent you do have an objective means, which is the level of classified assets, then theory would suggest you would add some level of reserve. Speaker 300:32:19So we're being disciplined. We're staying with the theory. But on the basis of the strength of the LTV, it's a modest increase, which by the way, as the level of substandard loans and special mention loans goes down, that actually gets you have to consider that that should get reversed. But it really is a theoretical accounting requirement and we're staying disciplined to it. Speaker 400:32:52Okay. Okay. Speaker 600:32:53And we appreciate all the updated credit metrics you provided in the release. Is there any kind of like update you can provide on the loans that have modifications and if you expect that to be peaking as well. And it sounds like you expect a lot of them to be resolved over the course of 2025. Speaker 300:33:12Yes. We do expect that the modifications are peaking. We have multiple levels of review. We have the department itself, based on its detailed knowledge of each loan, had to send a quarterly certification to us, the executive management and a whole host of control parties that, identifies all the problem loans. On top of that, we have a layer of credit review, loan review. Speaker 300:33:46And as Damian mentioned earlier, this quarter, because we do have an elevated amount of substandard loans, we called in a third yet a third party to review all the to view a very significant amount of the loans just to make sure that they had all been identified. So that really is the basis of why we think that the loans with issues have been identified and we think they're peaking. Speaker 600:34:17Okay. And if I could ask one more, please. Can you guys explain what's all captured in that $1,600,000 of consumer credit fintech fees that like interchange? And then have you guys started selling any for gain on sale revenue at all? Or is that in your plans? Speaker 200:34:35It is we haven't sold any gain on sale. So this is all on balance sheet. And it's and in this case, it's mostly fees for getting the money early. So believe it or not, while we get a spread on the loan, our business partner is giving free advances of which the source of income is actually if somebody wants it, even though they can get it in 2 days or 3 days at the most, They want it immediately. And so they it could be a $50 they want it and they pay a fee based on getting that money early. Speaker 200:35:15And because it's once again, this is a kind of a rapid loan. And they need the money at that point, and so they're willing to pay a small fee in order to get that money. And that's the majority of those fees is that $1,600,000 is the early basically getting the money a little bit early, and the client the customer is willing to pay a small fee to get that. Speaker 300:35:41And we also have secured yes, yes, we also have secured credit cards and while you don't see fees, fee income for that, that benefit to the bank is significantly reflected in greater deposits and lower cost of funds. Speaker 600:36:02Okay. And how do you guys see the composition of that revenue changing over time? Speaker 200:36:07Well, it will change because the partners that were will there be an expansion of these type of we have kind of 4 product types now, kind of variations of credit like products with one of our partners Chime. But our new partners that we're implementing will need to or have the business model to distribute the loans. We will hold assets for 30 to 3 to 30 days and then they will be distributed to investors. Now there will be also certain assets that we like or depending on the program, we will hold 5% or 10% of those assets longer term. And those are very high spread loans, obviously, compared to our traditional lending. Speaker 200:36:59So there will be 3 types, right? Secured on balance sheet, heavy fees, there will be fully distributed 3 to 30 day underwriting risk, but once again, there will be small spread, but a lot of fees, a lot of velocity, and then there will be a small portion of multiple different programs that will be on balance sheet. So it will be very diversified. Our future look, as we said to the market, in 5 years, but we think it's going to be sooner now because the balances, we think there's just such a large pipeline and the programs that we've already implemented are going so well that we want 15, 20 programs. It will look similar to our banking as a service on the debit deposit side. Speaker 200:37:44It will be diversified with the 3 business models that have already detailed. But in this case, you also get all the payments activity too. So this activity is high velocity, high fees and when we hold it, higher rates off the back of our banking as a service debit infrastructure. So it's extremely profitable business. Speaker 600:38:10That's great. Appreciate all the detail. Thanks for taking all the questions. Operator00:38:16Thank you. At this time, there are no further questions in queue. I will turn the call back to Damian Kozlowski for any additional or closing remarks. Speaker 200:38:25Thank you everyone for joining us today. Have a great day. And operator, could you please disconnect the call? Operator00:38:34Yes. This does conclude the Bancorp Third Quarter 2024 earnings conference call. Please disconnect your line at this time and have a wonderful day.Read morePowered by