The Bancorp, Inc. Q3 FY2025 earnings call

• Fintech initiatives: Credit sponsorship balances up 15% QoQ and 180% YOY; embedded finance platform expected to launch next year; Cash App program on track with expected revenue in Q1 2026.
• REBL asset reduction: Criticized REBL assets decreased from $216M to $185M QoQ, with more progress expected in Q4.
• Project 7 restructuring: Institutional banking business restructuring in Q4 2025, reducing headcount by 30 and incurring ~$1.3M charge, reducing run rate expenses by ~$8M.
• AI implementation: First AI-powered tool developed for financial crimes risk management, costing $300k with expected $1.5M in run rate expense avoidance, operational in Q1 2026.

In the third quarter, The Bancorp earned $1.18 earnings per share on revenue growth of 7%, excluding consumer fintech loan credit enhancement income and expense growth of 6%. EPS growth was 13% year-over-year. Fintech GDV continued to grow above trend at 16%. Revenue growth, including fee and related interest income, was 23%. Credit sponsorship balances ended at 785, up 15% from the second quarter and 180% year-over-year. REBL assets (substandard and special mention) declined from $216 million to $185 million, a 14% quarter-over-quarter decrease.

• Lowered 2025 guidance to $5.10-ish per share, primarily due to lower projected balances in traditional lending and increased credit provision for leasing.
• Targeting a minimum $7 earnings per share run rate by the end of 2026 under Project 7.
• Preliminary 2027 guidance at $8.25 earnings per share, with share buybacks tied to net income, aiming to return 100% of net income to shareholders through buybacks when feasible.

• Uncertainties in timelines for fintech initiatives (embedded finance, Cash App) affecting revenue realization.
• Market volatility and seasonality impacting deposit balances.
• Potential economic stress affecting consumer loan charge-offs and partner indemnification.
• Regulatory changes and ambiguity affecting BaaS partnerships, potentially impacting competitive landscape.

Q: Provide an update on Square and the Cash App program, timeline for volume transition and revenue ramp.

A: On track, revenue expected in Q1 2026; ramp-up schedule dependent on Block/Cash App timelines, with substantial fee revenue expected in Q3/Q4 2027.

Q: Update on $27M REBL loan scheduled to sell in Q3.

A: Expected to close in the next 5 days.

Q: Update on discussions with borrowers and new sponsors for REBL assets.

A: Working with borrowers, some in deferrals, market improved for assets, expecting good progress in Q4 and Q1, confident in 102M reduction.

Q: Color on deposits moving lower.

A: Deposits have ups and downs due to programs, seasonality, and potential government shutdown impact; expect growth in Q4 and ramp-up in tax season.

Q: Update on ARIA property, occupancy rates, and transactions.

A: Continuing to lease up, ~10% units needing refurbishment, over 20 units available for rental, expecting clarity in 30-60 days.

Q: Share repurchases implied in guides.

A: Share buybacks tied to net income and initiative timelines; expect to return 100% of net income to shareholders through buybacks when multiple is favorable.

Q: Fintech fees drop sequentially, trend moving forward.

A: Volatile with seasonality; look at year-over-year trends, above trend in GDV growth, expect above trend growth into next year with embedded finance and new programs.

Q: Rank order of fintech initiatives in terms of potential magnitude.

A: Embedded finance is a large opportunity, packaging capabilities for partners, with potential for significant fee growth.

Q: Loan delinquency data in REBL portfolio.

A: $102M under contract expected to improve Q4, reducing past due loans.

Q: Consumer fintech loan charge-offs, partners' indemnification.

A: Consumer fintech loans with Chime, partners have wherewithal to sustain losses, likely for marketing and relationship reasons.

Q: Embedded finance platform launch details.

A: Workable mockup platform live, focused on gig economy initially, large potential market, significant profitability enhancements expected.

Q: NIM trend and Fed rate cuts.

A: Balance sheet structured to be flat, not asset sensitive; won't chase bond purchases to supplement net interest income in current market.

Q: Regulator expectations for BaaS partnerships.

A: Regulators clarified guidance, helpful for industry, no reentry expected as BaaS requires significant infrastructure.

Q: Commercial fleet leasing issues and pressure.

A: Legacy disposition of assets, small exposure left, losses on disposition due to transportation industry depression post-pandemic.

Q: Update on CFO search.

A: Can't announce today, but expect to announce soon.