Bancorp, Inc. Stock

Hello, everyone. Thank you for joining us, and welcome to The Bancorp, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Andres Viroslav. Andres, please go ahead.

Thank you, operator. Good morning, and thank you for joining us today for The Bancorp's Second Quarter 2026 Financial Results Conference Call. On the call with me today are Damian Kozlowski, Chief Executive Officer; and Dominic Canuso, 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 12:00 p.m. Eastern Time today.

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, July 31, 2026. Yesterday, we issued our second 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 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. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are in the earnings release. 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?

Thank you, Andres. Good morning, everyone. The Bancorp earned $1.45 a share in the second quarter. EPS growth year-over-year was 14.2%. ROE was 34.7%, continuing on its upward path The Bancorp already has an ROE roughly triple the average of the banking industry, and we expect sizable increases over the next 3 years.

Consistent with our capital return philosophy, profitability increases are expected to be returned to our shareholders through share repurchases. In the last 4.5 years, The Bancorp has returned the equivalent of 100% of equity capital based back to shareholders through buybacks. We expect that time frame to decrease to around 3 years over the next 3 years. After that buying back the equivalent of our capital base in 2 years or less is a reasonable forecast. This results in annual EPS accretion of approximately 5% to 10% depending on the price of shares purchased and before our projected increase in net income, which should result in dramatic EPS accretion over the next 5 years.

Fintech GDV continue to grow significantly above trend at 22.5% year-over-year for the second quarter of Fintech revenue growth in the quarter, which includes both fee and spread revenue was 21% year-over-year. Our 3 main fintech initiatives that underpin our Apex 2030 strategy continue to progress quickly and are well positioned for substantial long-term success. Our onboarding new programs and expansion of current programs continues within or exceeding our targets. The Cash App program is now ramping up and should start contributing to GDP growth and profitability over the coming quarters with more material contributions coming in late Q4 and Q1 of '27.

Credit sponsorship balances continue to surpass our expectations. We anticipate announcing 2 new programs that subject to implementation timing and other customary factors would be expected to come online next 6 months. Embedded finance platform development continues with significant progress in building a robust integrated platform connected to our one-of-a-kind ecosystem. We should soon make an announcement on our first embedded finance partner.

Lastly, we're increasing our full year guidance to a range of $5.95 to $6.05 EPS for '26. We are targeting a range of $1.65 to $1.75 a share in the fourth quarter of '26 and we are maintaining a preliminary guidance for '27 of $8.10 to $8.30 a share. Our guidance in '26 and '27 includes anticipated stock buybacks. 2026 buybacks are forecast to be $200 million in total or $50 million a quarter, and we forecast future share repurchases to be near 100% of annual net income. We expect that our 3 main fintech initiatives along with platform efficiency and productivity gains from restructuring and AI tools, plus a high level of capital returned through buybacks will be the driving forces behind continued EPS accretion. And gains are subject to development implementation time lines in fintech and our stock price for any future buybacks.

I'd now turn the call over to our CFO, Dominic Canuso. Dominic?

Thank you, Damian. The second quarter was a very strong quarter, topping off record level earnings for the first half of the year and positions us well to achieve our expectations for the second half of '26 and full year '27. While ending loans were down from the first quarter, this was due to a change in month-end customer billing cycle and payment due dates with our lending partner. This does not affect customer performance or our economics.

Average loans for the quarter of $7.63 billion increased 5%, not annualized from the first quarter and 16% compared to the second quarter of 2025. Average fintech loans in the quarter were $1.39 billion or 18% of average total loans, up from 15% in the first quarter and 8% in the second quarter of '25. Our strategy is to continue to shift the loan mix towards the higher velocity, higher returning credit sponsorship business. Average deposits increased $97 million or 1.2% not annualized from the first quarter and $357 million or 4.4% from the second quarter of last year.

The average cost of deposits decreased 7 basis points in the quarter to 1.63%, which is 55 basis points lower than the second quarter of '25. We ended the quarter with $1.1 billion in net deposits swept off the balance sheet, which is down 16% from the first quarter due to seasonality but up 32% from year-end '25. While there may be quarter-to-quarter fluctuations in our off balance sheet sweeps due to seasonality or other factors, due to the strength of our partnership model and their growth, we expect this to increase over time.

NIM of 3.85% in the second quarter was relatively flat with the first quarter and consistent with expectations. Our fintech lending fees, which are recognized as fee revenue generates an equivalent to an additional 28 basis points of NIM compared to 24 basis points in the prior quarter and 18 basis points in the second quarter of '25. In addition, we generated $680,000 in fee revenue from our deposit sweeps, which would equate to 3 basis points of additional NIM.

Noninterest income, excluding credit enhancement, was $47.3 million, an 8.2% increase not annualized compared to the first quarter and 16.7% versus prior year quarter. This equates to 34.3% of total revenue with 29.7% of total revenue coming from fintech fees, up 1 percentage point from the first quarter and 4 percentage points from the second quarter of '25. As I mentioned last quarter, growth in credit sponsorship loans is a leading indicator of fintech fees due to the velocity of the portfolio and was demonstrated in the growth in the fintech fees in the quarter, including the 17% nonannualized growth from the first quarter, specifically from the consumer credit fintech fee line.

Credit performance was strong across all asset classes with continued improvements in Rebel and leasing. Rebel criticized loans were down another $13 million or 22% to $46 million the lowest level since mid-'23. When excluding the fintech credit sponsorship loans, which are supported by full credit enhancement, our traditional lending portfolio saw a provision of $0.4 million in the quarter, consistent with the loan growth and overall credit performance from the traditional lending portfolio.

Noninterest expense in the quarter was $56.5 million with an efficiency ratio of 41%. Costs continue to be managed prudently, generating continued positive operating leverage driven by our investments in AI, repositioning our revenues towards fintech and the demonstrated scale of our fintech platform.

Operator, you may now open the call for questions.

[Operator Instructions] Your first question comes from the line of Joe Yanchunis with Raymond James.

So I want to talk with the fintech loans. Can you provide a little more detail on the payment timing dynamic that you called out that impacted the period-end balances? And I mean, should we think of average balances as a better indicator of the underlying trajectory? And do you expect like the period end balance to kind of normalize over the next couple of quarters?

Yes. So it's -- sure. It doesn't affect our economics and stuff, but Dominic will go into detail.

Sure. Thanks, Joe. Yes, I would say, overall, average balances in each quarter are more indicative of our economics because traditionally, the fintech lending products are short term in nature and are affected by seasonality. With that said, this was a onetime change, particularly with the credit -- the fintech lending product where we actually accelerated the payment due date by 1 day to actually align with the terms and conditions with the customer. So there was no contractual changes, no changes with our customer performance and no changes in our economics.

And you saw that in both the loans stepping down and deposits on an ending balance basis. From here, it's normalized. So this was a onetime change. So while average balances will be more indicative of economic performance. The ending balance from here forward will also be in line with the change in average bounces.

Got it. I appreciate that. And then you mentioned expecting 2 additional sponsored lending programs to come online over the next couple of quarters. Can you help us think about the characteristics of those programs? Are they going to be similar to like Chime and be balance sheet intensive or something a little more higher velocity than [indiscernible]?

No, they will be much higher velocity, our Chime relationship is extremely synergistic. And so it will be less -- it will be -- once again, it will be very structured it will be with partners that you'll know. It will be similar types of loan products, though we'll have changes as we go forward in different categories. But they won't use the balance sheet in the same way that Chime does.

Got it. So would that volume show up under GDV then?

Well, no, the loans will be loans, of course, and there may be some spend in these programs off the back of the loans in certain cases. But no, they will be booked as loans, and you'll see them in the fintech loan line and may have some ancillary impact on GDV.

Understood. And then last one for me here. Just kind of want to talk about your outlook for a moment. I mean, you made a couple of tweaks to the 4Q number, reiterated your preliminary 2027 outlook.

Can you walk us through some of the factors behind the change the 4Q number?

Dominic, do you want to handle it?

Sure. Yes, I would say this was a minor change in our expectations, and it really comes down to honing in on the timing of that pipeline that we just talked about, which is why we reiterated our 2027 expectations. So from our perspective, we continue to anticipate a ramp-up in profitability from the second quarter to the fourth quarter and ability for that step-off point to hit our 2027 target. So from our perspective, the changes in that -- to that range is really a function of aligning with the phasing of onboarding and the growth anticipated from those programs.

[Operator Instructions] Your next question comes from the line of Tim Switzer with KBW.

First one I have is on net interest margin or maybe more appropriately NII for you guys. But how should we think about the trajectory NII going forward and the potential impact of Fed rate hikes. And what's the impact of higher rates on your loan yields now that, that portfolio has kind of changed a little?

Dominic will go into detail, but the -- we're fairly neutral on the balance sheet. We're slightly maybe a little bit asset sensitive on that side. So rate hikes won't really help us that much, but it won't definitely will not hurt us. Dominic?

Sure. And just to hone in on that. We are -- we try to manage to the interest rate neutral position. However, there could be some intra month or intra-quarter impact from the timing of any Fed rate changes due to the timing in which they impact loans versus deposit pricing resets. But over a quarter or 2, it's a very neutral impact, and we've been disciplined in managing to that level.

From an NII perspective, as we look through the rest of the year, I would say on a dollar basis, it's relatively neutral. We should see some compression in NIM as we migrate further to the fintech lending, but that should be offset by continued strength in the traditional lending average balance for the second half of the year.

On a NIM equivalent, just like you saw this quarter, we may see a slight tick down in that traditional calculation of NIM, but when you normalize for the fintech lending fees like we saw this quarter when incorporating those actually blended up a couple of basis points. So in summary, NII should be flat for the -- near flat for the second half of the year with a step down in NIM and a slight flat to up on the equivalent.

Very helpful. Okay. And on the card fees, good to see some of the acceleration in GDV is there any color on how much is driven by Square Cash App and the other new programs versus legacy ones?

And Damian, in your comments about cash out making a more significant contribution in late Q4 and Q1 of next year. That seems like it changed from your commentary previously about the second half of this year. So is that a little bit more delayed by other programs? I mean, appear to be making up for it right now?

Cash App is very unique because of the potential volume there because it's an ongoing program is very large compared to for the portfolio. So it can really produce a lot of incremental growth. That's usually not the case where it's that large. And it's really just impacting us now. And will ramp through the end of the year. So it's -- it will have a meaningful impact on GDV as we approach the end of the year. It's not really -- we don't give independent for each program. We'll let the programs give their own dialogue on their growth. But it's very broad-based.

It's coming from most of our 15 verticals and it's really -- you see across the virtual, the neobank, the virtual wallet segment, you see it through health care, corporate payments. It's very broad-based.

Okay. All right. So if I'm interpreting what you're saying correctly, it sounds like the acceleration would have happened regardless of Chime -- or sorry, cash app further acceleration over the course of the year, quarter-over-quarter.

Yes, this has nothing -- there's very little of Cash App in there. It's really not impacting your number, maybe up point or less at this point, but it's quickly ramping, and it should really start to affect GDV as we approach the end of the year.

Okay. Great to hear. And then I know this has been a common discussion point on these calls recently, but you have some prominent partners who have applied for a bank charter. Others who have indicated they will eventually maybe apply. And do you provide some examples of how Bancorp could still provide some best services to companies with an ILC or other type of charter and what those partnerships could look like?

Yes. So we provide a very scalable infrastructure, right? And we're talking about there's many segments we're in that you really never going to be a bank, right? It could be corporate payments, it could be healthcare. In certain cases, they're never going to government payments. There's never going to be a bank, they're never going to become a bank. So you're really talking about the neobank segment.

And we're providing an incredibly scalable middle office platform that can't be replicated by these programs, right? That cost to go in to replicate it is enormous. And we are a very small expense on their own financial lines. So there's a lot of value we bring. You enter our ecosystem, you benefit from this incredible scale and sophistication that's very hard to replicate on your own. So we don't think -- first of all, it takes a very long time to build these platforms the right way. It would you lose an information, which is, in a lot of cases, a big competitive advantage of us.

You lose the sophistication with regulators. So we think that it's not going to impact us especially in the near to the medium term. And as the -- we continue to build our scale and become much more efficient, I think we can add value to those regardless of the license or not, we can add substantial value to these large programs, nevertheless. And so we don't think it's going to impact us.

Okay. [indiscernible] charters, they obviously want to do something with it. So like how could these change what your partnership or programs look like in -- is there any set of your product base we see more risks or more opportunities as this goes on, whether that's deposits, credit sponsorships, the paving [indiscernible] or anywhere else?

Yes. Yes, it depends on what charter they want, but it's usually a funding situation where they want to have, in some way, a deposit. And we're talking about a charter that's consumer base that's not an industrial charter, right? So they become a bank and they are able to self-fund, but we're kind of doing that already, if you think about it with the time where they're using our balance sheet. But for some of these programs that are only lending base, they want that capability to self-fund. And that's where it's mostly coming from.

And Tim, just to add to that one consideration is if you think about the velocity of the loans generated, particularly by neos, having their own balance sheet allows them to be the buyer first choice and control the economics around holding loans. So to the extent there are partners with bank charters that want to hold the loans. We actually see that as a potential benefit because as the velocity increases, we are looking to off-balance sheet these loans over time as we grow that business, and it would be a logical place for that particular partner if they had a charter to hold their own loan after we originate and go through our compliance efficiencies that we bring to the table. So we think there could be a net-net benefit in that particular situation.

Okay. Yes. And just to make sure I understand your point here, it would make a lot of sense for Bancorp to still be the originator of these loans for a lot of the neobanks because you guys have the expertise on the regulatory side?

And Damian, going back to your comment on my first question about how expensive it is to build this out and you guys spend a lot of time on infrastructure. I think in the past, you guys have shared the overall investment cost it took to build the robust regulatory compliance infrastructure you guys have over the last, like 5-plus years. Could you go into that just a little bit behind it? [indiscernible].

That's very expensive. I mean, we spent I mean, over the last 10 years, well north of $100 million, $100 million just for the base platform. So -- and that's every year, you're investing in building for the future. So that adds up every year. And it's not just the amount of money, it's the amount of time that it takes to do that. it takes multiple years to build a platform that's robust enough to handle the broad middle office that you need to do in compliance, the regulatory relationships but also the tech stack.

And we have that already. We've invested in it to really have the best-in-class over 10 years and to catch up to that in a shorter time frame, just cost more money. So to say you can do it in 3 years, you're going to balloon your costs. And this has been seen when people try to build it out. in other places, the cost -- the shorter time that you take to try to do it, and that's problematic in itself to cause skyrocket.

So if you're going to get your banking license and you want to have everything done in-house. That's -- first of all, it starts with multiyear. It doesn't start with a 6-month project. This is a 3- to 5-year project. It requires you to increase your investment upfront because you're going to want to reduce the time and that is going to have a significant premium to what we're charging, right? So the payback on that investment, and you're going to get less quality, of course, especially over the first part of that until you get sophisticated, it's going to be multitudes of what we charge over any reasonable time.

So there is a real value we believe we bring the investment is prohibitive to get to where we are. And at the end of the day, it's a time frame issue. I mean we're talking about long-term commitments, ongoing investment and it will never be at scale. No matter how big you are, you'll never be at our scale, not even close. So you can't -- you'll never get to that unit cost that we can get to across our portfolio.

Just to add a [ final ] point to that. There is a significant benefit to all of our partners from what we call the halo effect, right? We're at $200 billion of GDV in the last 12 months. So our ability to see across payment types, across partners, across programs, ongoing fraud financial crimes that we can transfer the benefit across all of our partners that you just can't get with 1 program or a few programs. And then just to add, again, we have added slides in our investor presentation, particularly Slide 11 that demonstrates the scale and efficiency of our platform on a cost per GDV basis and our ability to improve our operating leverage and increase it over time, which, again, comes down to the inability to replicate.

Your next question comes from the line of [ Manuel Navis ] with Piper Sandler.

Talk about the fintech loan balances. Is the target still the same in terms of growth by the end of the year? And how would you judge kind of the progression of growth so far this year, like it's $1.4 billion on an average basis. Is that the number we should be growing from in the third quarter?

Go ahead, Dominic.

We do expect that to continue to improve both with our existing partners and the pipeline. The exact amount is a function of the timing of the launch of partners and the velocity and product that are launched. So we do expect it to increase. We talked about working towards a $2 billion level by the end of this year. We expect to work towards that.

However, we could have programs that just have higher velocity and lower average balances, but ultimately deliver the fourth quarter expectations and full year 2027 outlook that we've provided.

And with just to kind of confirm, on the client side, on the customer side, there was no disruption in any services from this payment date processing shift?

Not at all. In fact, it was just an acceleration of a couple of days of the payment the credit builder Chime card product to align with the actual terms and conditions. So it was seamless and effectively unnoticeable. It just changed the ending balance by 1 or 2 days depending. So again, no change in economics, customer impact, customer terms or performance.

Okay. And the progression and growth of that program is going as expected outside of this kind of figure out some [ that's the bolts ], but the progression of that program continues well?

Absolutely. It's on, if not better, and as you've seen in the average balance of growth that we demonstrated in the quarter.

Yes. And then switching over -- you still have the range on the 2027, based on this quarter's results, your progression with programs that are expected to hit. What are kind of like the updated factors driving the low end or the high end of the '27 EPS guidance, please.

Sure. At the end of the day, the range that we're talking about is $0.20 on $8. So it's incredibly small range from a percentage perspective and just captures the recognition of significant growth from where we are today to the fourth quarter into a full year of next year. And recognizes the fact that our pipeline is strong and that the exact timing and launch and phasing of those programs have some variability to it, which we're comfortable with because we -- when we launch new products and partners we want to be disciplined to have the right controls around it, the enterprise risk management around it.

So the range we're offering is really, really tight and it demonstrates that there could be some phasing, but the overall economics and growth in ROA and ROE hold to be significantly above this year.

The next question comes from Joe Yanchunis with Raymond James.

I just want to ask a couple more. So as sponsored lending becomes a larger part of the balance sheet, can you discuss how the framework for monitoring fintech counterparties have evolved? Like beyond credit enhancements what ongoing financial liquidity or operational metrics you track to ensure your partners remain capable of supporting their obligation?

Yes. First of all, you got to remember, we're dealing with very large enterprises, many of which are public companies, okay? So the disclosure there is enormous. And we go through a very rigorous process around all our partners and third-party risk management. So we delve into understanding their liquidity, their business plans, their metrics, what they expect to spend on things like marketing. We get a full disclosure of not only their current financial position, but their future forecast.

And we test that. And we monitor it very closely and ensure that the partner has the wherewithal to continue business and build its own business. And we do disengage when -- and we do it early. We don't wait. We monitor these things, and we've done smaller programs in the past, and we've disengaged from those programs when they're not successful before you get to a point where there will be a -- some type of impact. So we take very proactive high scrutiny and this is continuous through our third-party risk management process.

And then I was also hoping you could provide an update on your AI initiatives? The productivity still tracking in line with your expectations? And where do you see the next opportunities for [indiscernible]?

It's incredibly exciting. It's the improvement in AI has been dramatic over the last year. where it's really impacting us, first of all, is in 2 ways on enterprise level where our people are getting more empowered through AI to make their jobs more interesting even and the -- and get the productivity up substantially.

And then secondly, in use cases. One, for example, is the financial crimes where we have AI-empowered narrative writing capability that's improving monthly and making our people much more productive. And this really helps us manage the number of employees and make them much more efficient and productive, make their job better and it's improving rapidly.

So we're growing this GDV and in 4, 5, 6x what the market is growing, and we're able to handle that new volume by using some of these tools. So it's very exciting. It's getting better. We really are embedding it in the way we do business in both ways, enterprise level and then use case level. And it's going to have a dramatic impact on our ability to continue to grow and control our expenses going into the future.

Your next question comes from the line of Arif Gangat with [ Cygnus Capital ].

I had a question about the debt balance on the balance sheet. It increased meaningfully both sequentially and year-over-year. If you could please kind of share your thinking around funding the business with additional debt and if we should expect that to continue?

Dominic, do you want to handle it?

Sure. Yes, when looking over the financials year-over-year, clearly, that's impacted by the upsizing of the debt issuance in late 2025, which was very strategic for us as we saw an opportunistic position to raise debt, repurchase our shares and have an accretive impact to our shareholders, which has played out meaningfully over the past year and aligns with our capital return philosophy, which we talk about. There was an increase quarter-over-quarter in some short-term borrowings, more from perspective as we just manage the balance sheet.

We're very focused on optimizing our returns and have significant access to borrowing, first of which is the fact that 95% of our deposits are from fintech and FDIC insured. So they're very stable and granular and low cost. We have $1.1 billion of deposits off balance sheet, which we have the ability to pull back and optimize both to fund the business and/or generate revenue. We have more than 50% of our deposit base in readily accessible borrowings at market costs.

And most importantly, strategically, we expect our business -- our core business on the fintech side to continue to grow deposits. And so with the fact that we're near maxed out on the asset side of the balance sheet with the run rate to continue to grow deposits, we see ample opportunity to continue to fund the business without taking on any long-term debt and any short-term borrowings would be to fund intra-month or intra-quarter seasonality.

Got it. That's very helpful. I appreciate it. Just to clarify, sequentially, debt went up ballpark $265 million or so. So from a liquidity point of view, given that the fintech loan book for the reasons you outlined earlier on the call, the onetime change actually shrunk. Can you help us understand what drove the liquidity need?

Sure. Well, first, is the first quarter is a seasonally high deposit generating quarter. And so there is an expectation that there's a seasonal step down from first to second quarter, plus the continued average balance growth that we've seen, both on the traditional lending side and the fintech side. The impact from 1Q to 2Q is more seasonal in nature and not business trend. It's -- the long-term trend is our ability to fund the business.

And so as I mentioned, we expect for the rest of this year, the deposit growth to outpace our lending growth, so that will bring that amount back lower. And again, we have many levers to pull to be able to optimize that. So when we consider liquidity, the cost and access of liquidity, that's all incorporated in our expectations for continued earnings growth and EPS growth in our guidance that we provided.

Okay. Very helpful. I appreciate it.

And then I do have another question on -- a couple of questions on the [ Rebel ] portfolio. The 10-Q is not filed yet, but if you could please share how much of the [ Rebel ] book, just ballpark you expect to mature within the next 12 months?

So we're over -- so we have -- go ahead, Dominic.

Sure. Just as a reminder, the Revel portfolio is structured. These are structured loans at 3-year loans with a plus 2 1-year extensions. So in general, they're naturally short term in nature. So we expect any year, 1/3 of the portfolio to churn or renew, and with the continued improvement, the maturation of the investments in the loan portfolio, the properties themselves, the loan to value continues to improve.

The sponsors are stronger and so -- and we're comfortable with where pricing is in the market relative to where the pricing -- contractual pricing of the book. So we do not see a credit or price cliff given the short-term nature of that portfolio. We're very comfortable with how it's performing and its expectations to continue to contribute meaningfully on an ROA and ROE basis going forward.

Yes, we did have a bump -- yes, just adding to that, we did have a bump in the past, but we're through that, and that was because we got back into the business in the early [ 2022 ] vintage, which became a migrated and credit quality due to all the pandemic, that bump we've gotten through. So now it's much more on a normal basis because we're originating kind of as a replacement cycle. So you're getting a much a normal role on the portfolio.

Got it. Okay. I think if memory serves from the March Q, as of 3/31, roughly just shy of $1 billion was slated to come due. So my question is, is it your expectation that those loans as they mature would be refied out by external third-party lenders generally? Or would you folks look to refinance yourselves out with a new loan to the same sponsor?

We don't do new loans. What we do unless we had an asset that's been repositioned what usually occurs is that it's a 3-year loan with 2 options to extend it depending on if they accomplish their business plan and everything, they -- so there's 2 extensions built in. And that's totally dependent on completion of the project. After that is done, then they go if they choose to, they -- well, they will leave, right? They usually a lot of agency, but the refi with another bank.

We don't do the stabilized finance. So that's where the role comes from. And you can be anywhere in that cycle. So when you're looking at that number, that could be somebody that's extended or ready. It could be somebody who's just finished their project. But we want to keep generally, we want to keep loans when you complete a project and they want to extend a year or even 2, that's a very good stabilized loan. And it's usually at their discretion, even though we obviously have a saying it, but it's their stretch because they wanted they're waiting for change in interest rates or they're looking up for their own takeout strategy within their portfolio. So we accommodate that and that's built into the structure of the credits.

Okay. Got it. Very helpful. And then lastly, could we please have an update on the status of the [ abri ] stabilization and how are you folks thinking about getting that asset out of OREO?

Yes. So it's past 70% of occupancy, right? We want to -- we're so far along. We have a few buildings as a lot of buildings at the site. So we still -- we're down to the last few buildings, and we're in 3 phases of renovation of those buildings.

We're way north of 70% of the buildings that are already completed. So we're at the point now that the appraisals way above 50 and our base is in the low 40s. So now we're at the point that we're going to get to the stabilized takeout. And so that's a different market than somebody who's going to be a financial sponsor. There's just been so much work done. We're at the breakeven point. And as we continue with the occupancy, we'll actually, it will be a profit positive rather than a drag. So we're just -- we should be able to be completed from the first quarter, and that's where the stabilization will occur.

We have reached the end of the Q&A session. I will now turn the call back to Damian Kozlowski for closing remarks.

Thank you, everyone, for joining us on the call today. We will be attending various investor conferences during the third quarter, and we'll be on the road with investors in the coming weeks. We look forward to meeting with many of you throughout the quarter. Thank you, operator. You may discontinue the call.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello and welcome to the 2026 Annual Meeting of Stockholders for The Bancorp, Inc. Please note that this meeting is being recorded. [Operator Instructions] The meeting is about to begin.

Good morning, ladies and gentlemen. I am James McEntee, Chair of the Board of Directors of The Bancorp, Inc. It is my pleasure to welcome all of you. It is 10:00 a.m. Eastern Time. And in accordance with the notice of the meeting, I call to order the 2026 Annual Meeting of Stockholders of The Bancorp, Inc., which is being held virtually.

Before proceeding, I would like to make certain introductions and announcements. I would like to introduce the other directors of The Bancorp who are present today in person or virtually. Dwayne Allen, Todd Brockman, Matthew Cohn, Cheryl Creuzot, Hersh Kozlov, William Lamb, Stephanie Mudick and Mark Tryniski. Also serving on the Board of Directors and present is Damian Kozlowski, our Chief Executive Officer. Each of the current directors is standing for election to serve a 1-year term that will expire at the 2027 Annual Meeting or until his or her respective successor is duly elected and qualified. All directors were previously elected by the stockholders at the 2025 Annual Meeting.

We are also joined today by members of the company's executive team and representatives from Crowe LLP, the company's independent registered public accounting firm, who will be available for questions. There will be a designated time for questions prior to the announcement of the results of the balloting. Questions are welcome from those stockholders who have entered their unique 11-digit control number when entering the virtual meeting platform. As noted earlier, questions may be submitted by using the question box at the right of your screen, typing your question where it says, please submit a question to the presenter and then clicking the submit button.

When asking a question, please include your name and the number of shares you hold. We encourage you to submit any questions as they arise during the meeting and we will respond to them as appropriate. With respect to any questions regarding the procedures for this meeting, I encourage you to review our rules of the quorum, which are available through the meeting platform. To access the rules of the quorum, please click on the documents link at the right side of your -- the top right side of your screen. Ms. Erika Caesar, The Bancorp's Executive Vice President, General Counsel and Corporate Secretary, is hereby designated to act as Secretary and Inspector of the Election for this meeting. I would now like Ms. Caesar to report on whether the requirements for holding this meeting have been met.

This meeting is being held pursuant to a notice mailed on or about April 13, 2026, to each stockholder of record as of close of business on April 1, 2026, that was entitled to vote. A list of the stockholders entitled to vote at this meeting has been available at the company's executive offices for the past 10 days. Proxies were solicited on behalf of the Board of Directors of The Bancorp for this meeting. Under applicable law, for there to be a quorum for the consideration of any matter at this meeting, there must be present in person or by proxy, the holders of a majority of shares issued and outstanding and entitled to vote. The total number of shares entitled to vote at this meeting is 41,853,761 shares. Of these shares, they are represented in person or by proxy here today, the holders of a majority of the shares issued and outstanding and entitled to vote at this meeting.

I hereby declare that we have a quorum and the meeting is duly convened and competent to proceed with the transaction of business scheduled. We will now proceed to the business of this annual meeting. We will now review each of the 3 proposals outlined in the company's proxy statement and then proceed to the stockholder vote on the proposals. Please note that the polls have been open since the beginning of the meeting.

The first proposal to be acted upon by the stockholders is the election of all directors of The Bancorp. On behalf of the Board of Directors and as recommended by the Nominating and Governance Committee, I hereby nominate for election as directors of The Bancorp to serve for a 1-year term expiring on the date of the 2027 Annual Meeting of Stockholders or until his or her respective successor is duly elected and qualified, the following director nominees: Dwayne Allen, Todd Brockman, Matt Cohn, Cheryl Creuzot, Hersh Kozlov, Damian Kozlowski, William Lamb, James McEntee, Stephanie Mudick, and Mark Tryniski. No other nominations have been made in accordance with the advance notice provisions of the company's bylaws, therefore, no other nominees are eligible. The second proposal to be acted upon by the stockholders is an advisory vote on the compensation paid to our named executive officers for the fiscal year ended December 31, 2025. To make this proposal, I recognize Justice William Lamb, Chairman of the Compensation and Talent Committee.

Thank you, Mr. Chairman. Good morning. On behalf of the Board of Directors and the Compensation and Talent Committee, I hereby move that the stockholders approve on an advisory basis our compensation proposal through the following resolution, and I quote, "Resolved that the compensation paid to the company's named executive officers as disclosed in the company's proxy statement for its 2026 Annual Meeting of the Stockholders pursuant to Item 402 of Regulation S-K, including the compensation discussion and analysis, compensation tables and narrative discussion is hereby approved". I so move.

The third proposal to be acted upon by the stockholders is an advisory vote on the ratification of the appointment of the company's independent registered public accounting firm, Crowe LLP for the fiscal year ending December 31, 2026. To make this proposal, I recognize Mark Tryniski, Chair of the Audit Committee.

Thank you, Mr. Chairman. On behalf of the Board of Directors and the Audit Committee, I hereby move that the appointment of Crowe LLP to audit The Bancorp's financial statements for the fiscal year ending December 31, 2026, be ratified.

We will now open the meeting for questions. To the extent any stockholders that entered their unique 11-digit control number have any questions that have not yet been submitted, please submit those questions now. We will review each question submitted and if appropriate, we will be happy to try to answer it. We will pause now to allow additional time for questions to be submitted.

Now I would like the secretary to read questions which may have been submitted related to these proposals.

There are no questions.

As there are no questions, I suggest that we proceed to the vote tally. Each holder of common stock is entitled to 1 vote for each share of stock held by him or her for each proposal. If you are already -- if you have already voted your shares and do not wish to change your vote, no action is required at this time. If you have not yet voted or would like to change your vote, you may do so by clicking the vote my shares link at the top right side of your screen. The polls will close in 20 seconds.

[Voting]

The polls are now closed. Ms. Caesar will now -- will tally the votes cast and submit her report. We will now turn to the results of the voting upon the proposals presented at the meeting. Will the Inspector of Election please submit her report.

The votes have been counted and The Bancorp's stockholders have, by a majority of the votes cast for each proposal elected each of the nominees for the Board of Directors for a 1-year term expiring on the date of the 2027 Annual Meeting of Stockholders or until their successors are duly elected and qualified, approved on an advisory basis, the compensation of named executive officers for the fiscal year ended December 31, 2025, as disclosed in the proxy statement and approved on an advisory basis, the ratification of the appointment of Crowe LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2026.

I hereby declare that the director nominees have been duly elected directors of the company, each for a 1-year term that will expire at the 2027 Annual Meeting of Stockholders or until his or her respective successor is duly elected and qualified. I further declare that the compensation paid to the company's named executive officers for the 2025 fiscal year has been approved on an advisory basis and the appointment of Crowe LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2026, have been ratified on an advisory basis.

These voting results are preliminary. The final voting results will be reported on a current report on Form 8-K that the company will file with the Securities and Exchange Commission within 4 business days after this meeting.

Thank you. The report of the Inspector of Election as presented is accepted and I direct that the certificate of the Inspector of Election, when received, be filed with the records of the company. There being no further business to come before the meeting, I declare that this 2026 Annual Meeting of Stockholders is adjourned. On behalf of the management and the Board of Directors of The Bancorp, Inc., thank you very much for your attendance. Operator, you can close the call now.

Thank you. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Hello, everyone, and welcome to the Bancorp Inc. First Quarter 2026 Earnings Conference Call. Please note that this call is being recorded. [Operator Instructions] I'd now like to hand the call over to Andres Viroslav. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us today for the Bancorp's First Quarter 2026 Financial Results Conference Call. On the call with me today are Damian Kozlowski, Chief Executive Officer; and Dominic Canuso, our Chief Financial Officer.

This morning's call is being webcast on our website at www.thebancorp.com. There'll be a replay of the call available via webcast on our website beginning approximately 12:00 p.m. Eastern Time today. The dial-in for the replay is 1 (800) 770-2030 with a passcode of 954 117.

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 of today, April 24, 2026. 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 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'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. 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?

Thank you, Andres, and thank you for joining our call today. The Bancorp earned $41 a share in the fourth quarter. EPS growth year-over-year was 18%. First quarter ROE was 35.1 and ROA was 2.57 on Fintech, GDP continues to grow above trend at 18% year-over-year. Revenue growth in the quarter, which includes both fee and spread revenue was 15% year-over-year. Our 3 main fintech initiatives continue to move forward quickly and are well positioned for success. Our onboarding of new programs and expansion of current programs continues at pace.

Cash at program has been launched. It will ramp up during '26 and '27 and shall progressive accretion to our financials. Credit sponsorship balances soared in the first quarter to $1.65 billion, a 50% nonannualized increase over the fourth quarter of 25%. As previously said, we expect to launch at least 2 significant additional programs in '26. Announcements are subject to our partners' marketing time lines. Embedded finance platform is close to completing the development of its first operational use case. We plan to announce at least one plant in this area in '26. We also made continued progress in reducing our criticized assets, which includes both substandard and special mention assets. These assets declined from $194.5 million to $163.1 million or 16% quarter-over-quarter. We expect more progress over the next few quarters. Lastly, we are maintaining our guidance of 590, EPS for $26 with $1.75 a share in the fourth quarter. Our expectation for '27 EPS is in a range $8.10 to $830 million. 2026 buybacks are forecast to be $200 million total and $50 million a quarter in '26 with '27 buybacks equal to near 100% of net income in the year.

Our 3 major fintech initiatives, along with platform efficiency gains from restructuring and AI tools plus a high level of capital return through continued buybacks will be the driving forces beyond EPS accretion. And EPS gains are subject to development and implementation time lines in FinTech. I now turn the call over to our CFO, Dominic Canuso. Dominic?

Thanks, Damian. The first quarter builds on our momentum and strategy from 2025 and is setting up for a strong 2026. Ending loans for the quarter are $7.75 billion, which is a 9% nonannualized linked quarter growth and 22% growth year-over-year. Credit sponsorship growth accounted for 88% of total loan growth linked quarter and 83% of total loan growth year-over-year, bringing the segment to approximately 21% of total loans up from 15% prior quarter and 9% a year ago.

Our strategy is to continue to shift the loan mix towards the higher returning lower cost credit sponsorship business. Average deposit growth was also a robust 9% nonannualized linked quarter fully funding the loan growth with an average deposit cost of 1.7% in the quarter, which was a 7 basis point decrease from prior quarter and 53 basis points lower than the prior year quarter. We also ended the quarter with $1.34 billion in off-balance sheet deposits comparing to $850 million at the end of the fourth quarter and $793 million prior year demonstrating the continued growth of our partnership-based deposit franchise, along with the strength of our overall liquidity position.

NIM was 3.87 in the quarter, down 43 basis points from prior quarter and 20 basis points prior year's quarter. The decrease versus prior quarter is driven by both the mix shift in loans to credit sponsorship and the lagged impact of the lower short-term rates on variable rate loans. For some additional context on NIM, especially as we continue to mix shift loans towards fintech. Our fintech lending fees are the equivalent to an additional 24 basis points of net interest margin.

In addition, given the volume of off-balance sheet deposits, we generated from 900,000 from deposit sweep fees, which is recognized in other income, which equates to another 4 basis points of net interest margin. Noninterest income mix, excluding credit enhancement, was 33% compared to 30% in the fourth quarter and 29% in the first quarter of 2025. Fintech fee revenue is 29% compared to 27% for both prior quarter and prior year quarter. It is important to note that the growth in the credit sponsorship loans that we saw in the quarter is a leading indicator of fintech fee growth, both in the lending fees and higher transaction fees due to the higher volume of churn in that portfolio. Regarding credit, we continue to see improvement in both our current and leading credit metrics with particular note in Rebel and leasing. Level criticized loans are down $24 million or 29% to $59 million from prior quarter and down 75% over the last 18 months. When excluding fintech credit sponsorship loans, which are supported by full credit enhancement, our traditional lending portfolio saw a provision reversal of $1.3 million, even as the traditional lending portfolio grew in the quarter.

The release of reserve was primarily driven by specific reserve reductions in our leasing portfolio that were established in the third quarter of 2025 as positive progress continues to be made with those borrowers. Noninterest expense for the quarter was $55 million with an efficiency ratio of 41.5% when excluding the credit enhancement revenue. We continue to invest in the fintech platform, including building out embedded finance capabilities along with launching new products. At the same time, we are leveraging AI and refilling costs across the organization to continue to improve efficiency and allocate resources to support our fintech initiatives. Operator, you may now open the call for questions.

[Operator Instructions] Your first question comes from the line of Joe Yanchunis of Raymond James.

So with your 2026 EPS outlook reiterated. Can you talk a little more about your embedded finance offering and this initiatives impact on 2026 results? I mean how long will it take to onboard this first partner after announcement. Obviously, partner delays are a thing in this space. I just was hoping to get a little more color on that from your end.

Yes. We have very little revenue and for embedded finance in '26. We have more in '27. But you're exactly right. we're likely to announce at least 1 partner. It does take a while to fully build out the capability depending on what the use case is. It could be very limited or it could be very broad. So that impact of embedded financial will be fulfilled in '27 and '28. So very little revenue is in our own plan for '26 were embedded.

Now we do have revenue in there for continued sponsored lending growth and for a potential announcement around 2 new partners. So that has more of an impact than the embedded would on our own budget.

Got it. That's helpful. And in your prepared remarks, you discussed some metrics behind your off-balance sheet deposits in that strategy. I mean, how should we expect this to evolve over the coming quarters I assume the amount earned per deposit is based on the individual deposit costs, and correct me if I'm wrong there. But will the biggest driver of revenue growth from this be moving more deposits off balance sheet or getting better economics per deposit.

It's both, right? So over time, we take the higher cost deposits off the balance sheet. And we do, depending on the program that we're taking off the balance sheet, we may get some spread on that, right? It's in our own forecast, that's a small part. It's basically. The way we look at our own forecasting over 3 to 5 years, it wouldn't be as we grow the other parts, the main initiatives that's literally gravy on top. It's not a big part of our own planning. And they're volatile, right? And it depends on the program, but they will grow. We'll have forced lower basis points on what we have to pay out as we take more higher-yielding deposits off the balance sheet. And in select occasions, we will get some spread on transferring those deposits through a network to other banks. .

Okay. I appreciate that. What about the [indiscernible]? What are your current thoughts on the timing of selling that property? And has your expectation around the sale price change given the recent softness that we've seen in rent prices. And then additionally, has there been any thought on redeploying those proceeds into share repurchases? Or would you just secrete that capital?

Well, we're going to return 100% as we've said before, of share buyback from our net income until we get a multiple that we think is appropriate for our ROE and growth. So that -- whatever we get net income will distribute back to shareholders through buybacks. But Dominic can give you a good update.

Sure. Yes. So we continue to invest in the property increase the occupancy rate as we the occupancy rate of available rooms has been 80% even as we've doubled it and there are plans to continue to finish the remaining 50 units that need to be upgraded. We're just over 60% of occupancy on a total unit basis, and we expect to hit near 70 in the very near term. We expect the property to be operating breakeven by the end of this quarter, so its impact to our financials should be neutral. And we've shifted a bit given the significant progress and success in the continued occupancy from just removing it from the balance sheet to actually getting it to a stabilized valuation, which may take a little longer, but ultimately result in better economics for the bank when we exit.

Okay. That was helpful. But I should just want to kind of dig into something that you said, Damian. So I was under the impression the guidance implied $50 million of share repurchases per quarter in '26, and then you returning 100% of net income or putting up -- making the buyback 100% of net income in '27. So would that mean if you sold the [indiscernible] and is that mean you're going to sell in 2027 kind of based on your answer?

We're looking to -- I think we'll be totally full if we're going to go to stabilization, that would probably be a first quarter next year event. We have -- there's close to 50 buildings on the property, right? And there are 9 left, and we're reconditioning those 9 buildings over 3 phases over the next 9 months. So if we get the stabilization probably would happen to occur at the end of next year where stabilization is in the high 80s, low 90s. And then we would be able -- at least to get obviously our bases covered, but the appraisals are in the low 50s. So -- and if we were to monetize, it would be a rounding year to our buyback. If we get our buyback, we're a little bit less than net income this year because we did so many buybacks last year that were just building a little bit of extra equity into the end of this year, and then we would return 100% for the foreseeable future, we think, depending on the multiple. .

So the exit on the [indiscernible] , it stabilized. If someone doesn't come in and just write a check, but our current intention is to fix those 9 buildings, get it up to high 80s, 90 and then monetize it at this current time. So because we've done so many -- so much work already.

Right. Okay. Great. And then one last one for me here. How much of your balance sheet are you willing to dedicate to credit-enhanced loans over time?

All of it?

All of it, okay.

Credit and [indiscernible] credit sponser loans. Which one do you mean? .

The credit sponsored loans, the one that's I thought.

So there's 2 parts, right? There's credit enhanced loans and then there's also loans that we might do that are distributed or we might take parts of bigger origination slices of it, right, and keep it on the balance sheet. But of the sponsorship loans, I mean it's possible when we're looking at our pipeline, that will be a much bigger part of our business.

Now that's over many years. So we're going to -- and many of -- remember, we're in any of our businesses like SBA, the real estate business, which we have distributed before are fairly liquid assets. The same is true with demand loans on the institutional. So this is a multiyear thing. And it really depends on the programs. China is a very unique situation where we're using a lot of balance sheet. That's very unlikely to happen. There'll be some balance sheet used for future programs. Some might be bigger than others. China is a very special case. So this is a very -- when we look at our Apex 2030 strategy, we might -- originally, we were thinking 10%, and then we thought more like 30% or 40% of the balance sheet possibly in the next 3 to 4 years?

Your next question comes from the line of Manuel Navis of Piper Sandler..

This is Grant on for Manuel. I just wanted to ask, could you talk a little bit more about the shift in LLR for fintech loans? It was payment at 1.1% this quarter and was 2.84% last quarter. Could you just talk a little bit more about what drove that shift? Did you do more secured credit cards that require less reset.

So with the economics I let Dominic handle it, the overall economics, the NIM of the entire program because it's in different places of the balance sheet, and we fund it with noninterest-bearing deposits is around 3% NIM. The whole portfolio of products, if you take a look at all the economics. That may -- and the cost structure on that is not traditional lending, right? So you're not supporting it with origination, all the things that you would on a traditional business. So and it's credit secured. So we're getting -- the whole economics over the portfolio is around that would move up over time, potentially with different product sets. And I'm only talking about China. But Dominic, do you want to dig a little deeper.

Sure. Grant, to your question, the secured product did outperform the growth in the quarter. And so there was a mix shift towards that product, which does have a lower loan loss reserve relative to the other products. But across all products, continues to improve, as you can see in those metrics as the performance of customers along with the growth demonstrates the growth potential of the programs.

Understood. And I also wanted to ask what is kind of the pace of fintech loan growth from here? I see the goal was $2 billion by year-end. You're now at $1.67 billion, and you were at $1.1 billion at 4Q. How does this suggest other metrics like fee income or NIM.

The success in the quarter, we're very pleased with, and I think ran our internal expectations. That does not change our full year targets or expectations, I think what it does is demonstrate the strength of the balance sheet. We'll see in the near term along with fees that we anticipate from the churn, particularly in that higher volume portfolio. So overall targets remain the same. I think there was just a little bit of a pull forward of volume that we anticipate, which is very positive, and we're excited to see. So it just means that the balance sheet will be a little higher earlier in this year than originally expected.

Your next question comes from the line of Timothy Switzer of KBW.

So Damian, you mentioned in your opening comments that the new cash program has launched and will ramp up over the course of the year. It looks like we saw some acceleration in GDP. Was there any contribution at all this quarter?

No, very little. So very little right? So our partners are very they're meticulous when they launch these programs in solar way. So we go through a long testing phase. And then you start -- we're in the full I would say, turn the dial stage where everything is set. We're watching you have incremental kind of gating issues. So we've already passed the first gate, and we're ready to start turning up the dial. So a lot of work has been done. Like I said that by the end of the year, it should be fairly meaningful to our financials. It's all predicated on the time lines, right, of that gating. It's going very well so far, but things can -- I think it's going to be good. So you'll see that dial turned up through '26 and then especially through the first part of '27. So everything is going well. And I think all us, our partner all pleased with the implementation. .

Awesome. That's great to hear. So it sounds like the real acceleration, like an inflection point kind of occurs in the beginning of '27.

Well, it will ramp up this year. It will start being meaningful. When we talk about our own forecast with our programs, we see a bump in the fourth quarter. That's part of the bump, right? It's not embedded finance like we were saying before, but it is -- it's definitely the time lending, it's definitely Cash App, other programs that we will announce other lending programs, we'll also announce other banking as a service programs over the course of the year. And all those things will start meaningfully contributing by the end of this year, but then '27 there will be multiple things ramping up together, which will really lead us into that '27 guidance that we have.

Okay. Nice. And so you talked about this earlier with Grant's question on the 3% NIM. But I'm not sure if that was just the secured card or all the fintech loans. But could you kind of helping the economic one.

Yes. The reason I said that is because I just wanted to give the -- there's a lot of confusion because it's a different. It's -- we don't break it out separately, and it's in total economics, right? So we're funding it, right, with noninterest-bearing deposits, right? There's multiple different products. There's 4 and it's growing, different products. But if you look at the entire economics of it, today to the Bancorp, right? It's around 3% NIM for us, right? Because it's obviously been funded.

[indiscernible] card or all of the fintech.

That's everything together. We don't give independent economics, but it's a blended economics it's about what it is. right? That potentially will grow over time depending on the product mix. And it's a very -- I think it's incredibly synergistic for both us and our partner. I think it's a -- it works for us for both of us. The programs have grown. Obviously, it's been a great source of a great source for of revenue, but also of relationship deepening for time, and we're trying to support their initiatives as -- by using our by using our balance sheet.

Now that's -- once again, that's a very unique relationship. I'm not saying that we will have -- like we do with China, that was very unique where we've -- we have a very deep relationship with them, obviously, for the issuance of their cards and new products and now their lending products. So we look at the entire economics of the relationship. That 3% doesn't include obviously all the interchange, are part of the interchange that originates.

On the secured card.

No, not cure card. That would be in the -- if you look at all the products, the lending product that we -- we're talking about all products, right? So any of their other products, where there's interchange involved, we get a portion of that. Plus obviously, they have deposits that are sitting in the bank that are in excess of the noninterest-bearing deposits.

There's some of their saving deposits. Some of those are off balance sheet, I would say. There's the lending part where if you add all the economics together, it's around 3%, right? But it also has -- it's secured, Remember, it's a credit enhancement, right? Then separately with the whole stream of revenue, obviously, that appears in fees that's only linked to interchange. And then the third part of economics, there's other deposits that fund the bank excess deposits that aren't went out that provide deposits to the bank, too. So that's -- it's such a broad, deep relationship that there's multiple revenue streams from the China relationship. Lending is just one of them.

Yes. Okay. I get that. I'm getting a lot of questions about kind of the profitability on these loans because if we take the numbers that are, I guess, disclosed and we can directly tie to those loans, if I take the fintech fees and the interest income and then those average balances, it looks like it's an annualized yield of about 2.7% and it's pushing off these non-fintech loans yielding nearly 7%. And I know obviously, on credit risk, it's not a traditional loan where cost as much to originate -- where are the -- and maybe just the broader parts of that relationship with China I know all of this ties in together like you mentioned. But...

You're not that far off, right? So that's 2.7 we're saying it's around 3 today, right, with the mix currently, right? But the cost structure is radically different. It's only a fraction of traditional, right? So you're getting NIM and that's once again is separate from the other 2 revenue streams. You're getting a 3% NIM, right, but it's a fraction of the cost of traditional lending, and it has no risk of loss. So think about that, right? So if you kind of -- that's like almost -- it's almost a bond, right? You could think about a 3% -- a short-term bond that's yielding 3%. And then you have all these other revenue streams that are coming off that, including increased spend. So if you think about it, we're lending money out to people that wouldn't have used it otherwise, and that creates interchange, right? And the velocity there is extremely quick. Right. So we're talking about billions potentially every month that are going through those products, creating fees for time, obviously, but also creating economics for us. It's creating additional GDV spend.

And this is -- just to add, I think the most important part here is the fact that each partner has unique expectations and unique designs and given the ability to generate deposits generate transaction fees, whether it's debit or credit parking loans on the balance sheet and potentially off balance sheet in the future for loans, up balance deposits that are excess or funding other programs with deposits. We believe the economics to the partner are where they need to be for them to invest and grow in their programs. And for us to see the returns on a total ROA and ROE basis, that are accretive to where we are today, which is why we expect and intend to continue to shift the balance sheet towards these products.

Got it. All that answers my question very clearly. And in terms of like the velocity, can you maybe like what was the volume on the loans this quarter? Or how long are you holding these on the balance sheet on average. And then how might that change in the future, whether you guys change your strategy or these 2 upcoming credit sponsorship programs sound like they might be shorter duration. If you plan to transfer more securitizations, anything like that would be really helpful.

It's hard to give you clarity on that because we haven't announced. There's a bunch of different use cases from wage access to longer-term installment loans. And we intend to do all those things, right? So we tend to provide some on balance sheet, probably not as much as our current relationship with Chime to other partners. We intend to securitize a lot of it, so you'll get incredibly high velocity, and you hold those loans from 3 to 30 days probably at the most. Usually, it's only a few days, will be purchased back by the fintech partner and then securitized.

And then there is definitely a situation where we'll be holding pieces of loans at a much higher yield, right? So loans that we like or if it's important to the product for us to hold -- excuse me, partner to hold the strip, we will, but those loans will be very, very high. So if you look at the NIM today, of the Bancorp where it is today, right? We're around 4%, if you add back what Dominic was saying, the basis points on the fees that potentially could be viewed as interest, right? So it's not that different. We had some deterioration in our NIM. But if you add back increase fees from this quarter versus last year, it's 12 basis, 13 basis points different than then. Your NIM is going to -- your net interest margin should go up over time, right? If you add back all those fees depending on the programs because you're going to obviously have pressure on deposits going down, right, because of our liquidity. So we'll take more high rent deposits off the balance sheet. And then when you look at these programs, the Chime situation is the lowest -- probably the lowest NIM situation you would have because of all the synergistic revenue.

So that, over time, once again, adding back potential fees from the line that we have that third line in our financials around fintech loan fees. Plus, you've looked, obviously, the interest is if there's any interest on those already in our NIM calculation that after this initial stage should start moving up, right? And then in many of these cases, these are the velocity of loans, you'll be getting fees. And so you'll get effective yields very short-term loans, very quick, many of them will be backstopped or securitized.

So you'll have a conversion of the balance sheet from traditional, nontraditional lending. There'll be less of a -- potentially of a traditional bank reserve. These are the structure of these loans. The velocity will go up very high. And if you add back the fees on these loans, the NIM, the effective NIM on these loans over time will go up. Now in the near term, they'll go down, for the reasons that we stated on the Chime program, but that should turn around as we add new partners.

Great. Yes. I mean, that's really helpful. I mean, regardless of where the reported NIM goes, Apex 2030 ROA 4%, Bottom line is moving up.

Yes, just look at this quarter, we had a 35% ROE. Look at our right? And if you consider that the fact that we're going to be repatriating our equity or equity stays the same. So any accretive -- as we -- as our net income moves up, obviously, our ROE, ROA will continue to move up, and our efficiency ratio is likely to move down.

Yes. That's great. Okay. Another area that has become a bigger and bigger opportunity in the fintech side of things for you guys to off-balance sheet deposits, I think of downto1.3 billion right now. Your press release you mentioned $900,000 earned on deposit suites in other income. Is that where all the revenue from your off-balance sheet deposits are reported? Just want to make sure I'm capturing all the revenue.

Yes, Dominic can answer that, but yes.

That's correct. That's where it's located. As Damian mentioned earlier on the call, first quarter is seasonally high just because of tax season. We do expect it to contribute, but it's probably a secondary or tertiary benefit from all the strategies we just talked about.

Okay. Yes, makes sense. I think on the last incents call, I got a few more, if that's okay. On the Rebel book, it's good to see another quarter of improvement in the credit metrics there. Can you give us an update on how the maturities and refinancing within the Rebel book are going right now? And like one thing I'm looking at is other percentage of rebel balances maturing over the next 12 months decline meaningfully for the first time in a while in Q4, it's now less than 50%. Do you have that updated number for Q1? Because it kind of seems like it could indicate you're seeing less 1-year extensions and more actual payoffs.

Yes. So remember, we have great visibility. These are repositioning mostly of workforce housing, and they require work. So there's constant draws, right? We have reserves and everything. So we don't -- the reason that we had that bubble when we did was that because the origination period where we got back into the business, there were a lot of loans done at that time, right? We haven't -- we've maintained the portfolio, but that bump in -- that large bump in origination during that period that resulted in classified assets has worked through the system, right? So those were the buildings that we're having issues due to the supply shock interest rate increases, sharp interest rate increases. So that bubble has gone through the system. So that's dropping because we just haven't had as many originations, right? So -- and if a project is completed, right? It's on plan and everything. Sometimes sponsors will want a year or 2, and that's built into our contracts to 1-year extensions and people take advantage of that sometimes it's at both for agreement. And their stabilized loans at that point, they may want to do an exit, and they're not exactly want to do it at this interest rate. So Yes, that -- the reason that was so high was because of that bubble. And that bubble is -- I don't know the exact may be Dominic has fingertips, maybe we can publish it in the future. But that is slowly working down quickly. .

Okay. All right. That's helpful. And kind of related to that, it looks like the average yield on the Rebel book has gone down from about 8.5% to 7.6% in the last 2 quarters. It seemed like a pretty quick decline. Could you talk about the drivers there in terms of maybe what new loans are coming on at versus rolling off? And how much of that decline could be due to some of these extensions or modifications of that .

Go ahead, Dominic, do you want to handle that? .

Sure. Yes. Well, just as a reminder, 1/3 of that portfolio is variable. So you'd clearly see a step down with the short-term interest rate environment that we've seen over the past year. But to the point that you just spoke about, which was the vintaging, that large vintage in roll through, again, they're on 311 contracts, many of which came to that second term and were either recapped or refinanced or sold out. Those recaps and refinances were at lower rates because they were at more stabilized values, previous investments, stronger investors. So those rates by the quality of the positioning of those loans brought down the rate combined with the variable rate environment we do think we're at a good point now having worked through that large vintage bubble and with the lower rates that we should see much more stability going forward.

Continue to see loans rolling off in the low 8s and being put on in the mid-6s. So you'll see that natural portfolio churn. But that's just the interest rate environment we're in nothing more than that.

Okay. All right. That's helpful. And then the last one for me. Is there any risk or even opportunity from the proposed executive order on banks being required to obtain citizenship info, it seems like that would be a big lift for a lot of the fast things given like the third-party relationships and how small some of these accounts are. And like on the opportunity side, would your prepaid card products be required to obtain citizen like Citizenship info as well? Because it seems like it could push a lot of people towards those sort of products.

That would be a very difficult thing to do since prepaid cards, every prepaid card that would be every incentive card that will be. I mean that a restaurant card that would be very difficult. The -- there are some -- those deposits on those type of cards in many cases are not even insured deposits because you don't know who it is. We do have I think versus many institutions, we have fairly good information in that area if it gets implemented. If it becomes a requirement, everyone will have to do it, right? I'm sure there will be an implementation phase. There might be new accounts.

All those things aren't clear at this time, so we can't really comment on it. But we do collect a lot of depending on the type of account and the use, there is a lot of already information like social security numbers and everything for many of our -- not of our clients, obviously, but of their clients that end up being deposits at our bank. So there is requirements already in place. And we -- right now, we don't know how that has to play out, whether that -- how that actually gets worked through the system. Obviously, the regulators where everyone it would be -- fintech would be if everyone would have to be involved and it would have to be implemented over long periods of time.

I would now like to hand the call back to Damian Kozlowski for closing remarks.

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

Thank you for attending today's call. You may now disconnect. Goodbye.

Good morning, ladies and gentlemen, and welcome to The Bancorp Inc. Q4 and Fiscal 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Friday, January 30, 2026.

I would now like to turn the conference over to Andres Viroslav. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us today for The Bancorp's Fourth Quarter and Fiscal 2025 Financial Results Conference Call. On the call with me today are Damian Kozlowski, Chief Executive Officer; and Dominic Canuso, 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 12:00 p.m. Eastern Time today. The dial-in for the replay is 1888-660-6264 with passcode of 658 52.

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, January 30, 2026. Yesterday, we issued our fourth 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 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. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are in the earnings release. 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?

Thank you, Andres, and thank you for joining our call today. At the beginning of [indiscernible] we announced the new brand that better represents the future of our company. It is a bold representation of the exciting future in front of us. Please refer to our website and other company marketing materials transformation. The Bancorp earned $1.28 a share in the fourth quarter. EPS growth year-over-year was set new trend at 16% increase for the quarter versus fourth quarter prior year. Revenue growth in the quarter, which includes both fee and spread revenue and excludes credit enhancement income was 3% versus fourth quarter prior year.

For the year, GDP growth was up 17%. In 2025 over 2024 and total fee growth was up 21%. Our 3 main fintech initiatives ended the year well positioned to create significant shareholder value in the future. First, our credit sponsorship balances ended at $1.1 billion, up 40% from the third quarter 42% year-over-year. We exceeded our goal of at least $1 billion in credit sponsorship balances ending at approximately $1.1 billion. We hope to add at least 2 new partners this year, and we'll make announcements at the appropriate time. Second, our embedded finance platform development continued to progress on pace with an expected launch early this year. And third, new program implementation time lines, Cash App being the largest are on track and should deliver meaningfully both to GDV and fee revenue in 2026 and beyond.

All 3 initiatives should be an increasingly positive effect on our financials as we move through '26 and show significant impact as we enter '27. We also made reducing our criticized assets, which include both substandard and special mention assets, these assets declined from $268 million to $194 million or 28% quarter-over-quarter. We expect more progress over the next few quarters. delinquency declined substantially from 2.19% of loans at the end of the third quarter to 1.6% at the end of the fourth quarter.

I now turn the call over to our CFO, Dominic Canuso. Dominic?

Thanks, Damian, and good morning, everyone. Overall, it was a strong fourth quarter and finish to 2025, building momentum on our APEX 2030 strategy. ROE was a record 30.4% in the quarter and 28.9% for the full year, continuing the trend of year-over-year improvements. Ending assets increased to $9.4 billion, up 7% versus prior year as the total loan portfolio increased $919 million to $7.26 billion, driven by $644 million in consumer fintech loans, which now constitutes 15% of our loan portfolio. In addition, in the quarter, we purchased $317 million in bonds 8 of which were fixed rate agencies, bringing our investment portfolio to 18% of assets and relatively consistent with year-end 2024.

Liquidity continues to be very strong with average deposits in the quarter of $7.6 billion with an average cost of 177 basis points. 95% of our deposits are from fintech with 92% of total deposits in short. With the continued growth of credit sponsorship and our overall fintech business, noninterest income, when excluding the credit enhancement, account for just over 30% of revenue in the quarter, with approximately 90% of fees coming from the fintech business. As Damian mentioned, we continue to see significant improvements in our leading credit metrics, including criticized assets, delinquencies and no rules. When excluding fintech loans, which are covered through the credit enhancement, the provision for loans in the quarter was $858,000 down significantly from $5.8 million in the third quarter.

Similarly, net charge-offs in the quarter was $629,000 in also down meaningfully from the $3.3 million in the third quarter and consistent with the low end of recent historical averages. Noninterest expense for the quarter was $56.2 million and included $2 million from a legal settlement relating to a previously disclosed legal proceeding initiated in 2021. We are actively engaged with our insurance company on recovery, including potentially recapturing historical legal fees. When excluding the legal settlement, costs were up only 5% versus fourth quarter of 2024, as we continue to scale our platform and reallocate resources to support continued top line growth.

Lastly, we purchased $150 million of our stock or 5% of outstanding shares in the fourth quarter bringing our full year repurchases to $375 million or 12% of outstanding shares.

I'll now turn the call back over to Damian.

Thank you, Dominic. We are initiating guidance of $5.90 EPS for 2026. We are targeting at least $1.75 a share in the fourth quarter 2026. We are maintaining a preliminary guidance for '27 of $8.25 a share. Our guidance in '26 and '27 includes stock buybacks. '26 buybacks are forecast to be $200 million total or $50 million a quarter. Our 3 major fintech initiatives, platform efficiency and productivity gains from platform restructuring and AI tools, plus a high level of capital return through continued buybacks will be the driving forces beat EPS accretion. EPS gains are subject to development implementation time lines on fintech and our stock price for buybacks.

Operator, could you please open the lines for questions?

[Operator Instructions] Your first question comes from Joe Yanchunis with Raymond James.

So your outlook calls for a rather seek EPS ramp. And I understand some of the underlying revenue drivers are dependent on partner activity. Just launching embedded finance and the new Cash App Cards. Having said that, are you able to give us some more building blocks to help us bridge the EPS gap?

Yes. So the -- they're large revenue opportunities. And we've got more clarity now than we did last -- end of last quarter where we did not issue preliminary guidance for 2026. We're on track with our initiatives. We continue to -- I think we're going to have some interesting announcements on the credit sponsorship over the next few quarters. And then we're going to be launching our embedded finance platform because we're at the stage now where we're confident that we'll be able to complete the platform for certain use cases by the beginning of 2016.

We're very clear on the -- because of other program implementation guidelines we now can better predict where we're going to be at the end of the year. And we think we're confident that we can hit that $175 number at the end of '26. And then if we stay on track where we are with our plans, '27 could be a really interesting year for the company.

Okay. I appreciate that. And if we just go back to the fourth quarter, you called out a couple of drivers or a few drivers that kind of weighed on results. Are you able to unpack those a little bit more?

Sure. Joe, this is Dominic. Yes, I think the first, obviously, we called out the legal fees. The second driver was just the unexpected duration of the government shutdown, which we believe affected the global economy and flow of both payments and deposits through the business. So reducing GDV slightly versus the higher expectation and run rate we had been at earlier in the year and affected our balance sheet mix, which were the 2 primary drivers, again, with GDV being part of that. And then lastly, while you saw significant growth in our credit sponsorship, balances. Most of that was at the end of the fourth quarter, which demonstrates the anticipated growth we expect through 2026, but it occurred later in the quarter than we expected.

So we didn't generate as much average balance income that we had expected throughout the quarter. So those are the 3 minor major drivers. And while they affected in the quarter where we ended the quarter, tees us up to achieve the full year and fourth quarter 2026 expectations that we've articulated.

Okay. So potential weekend government shutdown is not going to have -- that wouldn't be called out as a potential 1Q '26 headwind? Did everything come back online?

Yes. We don't think so because we're already receiving it's going to be a very large tax year. There's no doubt about it. We're already receiving a substantial amount of tax remindances that will go through our partner programs. So it's -- the first you never -- it hasn't happened yet, but early indications where there's been a lot of talk about how good this tax season, we're seeing it. And obviously, it will -- it's going to go to the underbanked and newly developed client wealth clients. So it should have a very good positive impact. And it should also affect our second quarter also as that gets spent through our programs.

Got it. And then one more for me here. So in your deck, you talked about -- you exited the quarter with $400 million in off-balance sheet deposits. Can you talk about the economics of this program? And should we expect all future deposit flows to be swept off balance sheet?

So we do expect to continue to generate, as Damian mentioned, particularly with the tax season coming up, generating deposit growth outpacing our demand for it. And so we will continue to look at the mix of our deposits and on balance sheet, the lower costing deposits while we mix shift to the higher cost deposits of balance sheet. And I think we continue to see this as an opportunity to not only optimize our earnings but generate revenue through this excess liquidity into the systems like [ Intra PHY ], and we look to monetize that particularly as we continue to grow in the second half of the year. .

Yes. Up to now, it's all been about reducing our funding cost as we've taken the high-cost deposits off balance sheet. In the future though, as we have larger and larger excess deposits, we will have some income over the reduction in funding costs but we haven't experienced that revenue yet.

Your next question comes from Emily Lee with KBW.

This is Emily stepping in for Tim Switzer. So I have a few questions related to the REBL book. Can you confirm that all the announced refinancings were with entirely new partners and was there any additional equity put in? And what are the new interest rate versus old one?

Sure. Yes. So some of the refinancings were with new partners, some were recapitalizations. At the end of the day, the existing properties were incredibly stronger positions than when they're originated and then given the lower interest rate environment, there was some step down in yield in the portfolio. But all of the positions are stronger than when we originated them with stronger sponsorships and some existing partners, but mostly no.

Got it. And then what is the plan for the [indiscernible]? I think on the Q3 call, you indicated you hope to get more clarity in the next 30 to 60 days. So just wondering if you have any update.

So we continue to see the benefits of the investments we've made to stabilize the property. Every incremental room we add increases occupancy rates. So in the last year, we've over doubled the available rooms and continue to see occupancy of available rooms in the '80s. We're getting close to breakeven on a cash flow basis, which we expect in the second quarter. So at this point, we continue to look for exit opportunities. But given the strength and the performance we expect in both occupancy and future positive cash flow after we get through the breakeven by mid-year we will look for broader opportunities as a stabilized property exit, which would increase the potential value that we get relative to not only our balance sheet, but the estimates that are out there.

Yes. And the appraisal is over 50, we had it reappraised and at a stabilized level now we're getting -- if we're renting 80% available rooms, we have good line of sight to have completing all buildings and then having early an 80% occupancy rate over the next couple of quarters. And then that's a -- once you get to that level, the number of buyers multiply significantly, and we have a potential to monetize, obviously, a gain on the property. So we're going to -- if we're going to exit in a prudent way. This was probably the most difficult situation that we've had in our portfolio over the last 5 years but we're working out of it. We've retained the value.

We've had multiple partners. There's a lot of people interested, but we're at a stage where we want to exit it in the right way. And now that it's approaching cash flow positive, we're going to be -- we're excited about in exiting, but we're also going to be prudent for our shareholders to make sure we get as much value out of the property as we can.

Great. That was helpful. And then I have 2 more questions. Just there's been a lot of discussion lately about fintechs obtaining their own bank charters. And most of that in the BaaS world has then how it could be a threat to partners, no longer needing a bank sponsor. So can you respond to that? And also just outline how there might be any opportunities here, if any?

Yes. So in our -- with our partners, there are many partners that will -- that aren't ever going to get a license, right? So we're doing corporate payments. We're doing a lot of things across our 15 verticals governments that you're never going to need a license, right? Or you're [indiscernible] license. It's really more narrow in some of the credit sponsorship areas, but also the times and the PayPals of the world, types of licenses like Utah, industrial banks and stuff where they might issue credit and everything. But we don't see our major partners. The reason is valuation and oversight. It's when you -- there was a lot of concentration a few years ago and a few people did get licenses.

But you then get all the scrutiny, you don't -- remember, our -- what we deliver to clients is a middle office very scalable platform at a very low cost. And as you enter our ecosystem, you get to benefit all the information of all the programs and we have $1.1 trillion going through the bank. So it's incredibly scalable. It's at very low cost -- even if you do get a license, you use our infrastructure. So it doesn't even preclude somebody getting a license and many of our partners have limited licenses of them using us because it's beneficial to them. So we don't see an impact right now on our portfolio, and we don't expect to have a major impact in the future.

Okay. Great. And then just if I could do one more. Can you walk us through the economics of your off-balance sheet deposits in the Suite program. specifically how much you generate off of that? And is the expectation going forward that most incremental deposit growth will flow from there?

Sure, Emily, this is Dominic. We had just mentioned in Joe's question that as of now, the leveraging the balance sheet off-balance sheet deposits, was really a function to optimize our funding and increase our net interest margin. We believe going forward, as we continue to generate larger amounts of lower-cost deposits that's when we'll turn it into a revenue generator. Now we do have plans this year to have deposit growth exceeding our balance sheet capacity and loan growth. And so we do expect some revenue generation from off balance sheet in this but we look for more potential as we continue to add partners and grow programs.

It should, over time, our funding cost as we continue to generate. There's like savings deposits that are higher cost. As we take those off the balance sheet, on a relative basis to Fed funds or deposit costs will go down right? It will go down. And if you net out some of the fees that we will generate by taking even lower cost deposits off balance sheet because they'll be under Fed funds, you'll continue -- if you add that back, you'll have even a lower funding cost. So it's very -- we're in a very liquid position with a downward pressure on deposit costs based on the liquidity of the balance sheet.

Your next question comes from Stephen Farrell with Oppenheimer.

I just have a quick question about the REBL loans. Regarding the $102 million in criticized loans this quarter, can you provide any color on what markets they were in?

Well, they were in a bunch of different -- there wasn't a single concentration. So we're in red and really red and purple states. We really aren't in California, New York, those type of markets. And the reason we've done that is because that's where the growing markets are, but that's also where the legal structural environment in real estate is advantageous. So for example, when we took over our asset in Houston. So we really focus on the -- it's really the Southeast lot in Texas and Florida, but also places like Georgia. And there was no -- it was across our portfolio. There's really no concentration in that number.

Okay. And I think you mentioned that some of the LPs were recapitalized. But the principal loan balance and the refinancing was the same, right?

Yes. So we -- so when we do these, there's a very good marketplace after the event that happened. It happened across the industry, right? But there were definitely people pools of capital that formed that they're looking to take out other sponsors because if you think about what happened was these are 3-year loans, you transition a property after 2 years is when you might have a problem. You can't finish your property, but now you've invested substantial amount of money and remediating the property. Our worst asset with the brand that's close to stabilized now. But generally, it's -- they get tapped out. These will have multiple of these properties usually might have multiple investors and at some point, they get tapped out.

But there's pulls of capital there that we can, and we have a great industry knowledge locally in these markets. So there's always someone who's willing to take over in most cases, willing to take over the property, infuse more capital. Usually, the buyer will just either walk away or get some type of note. So when they monetize the property, they will get some of their investment back. So they're -- that formed after the -- as people got in trouble and that started to materialize in '24 in late '23, there was a lot of these sponsors. And we didn't have that many. To be honest, it was like close to 10 or 12 issues in our portfolio of 150-plus loans. But other players, as you are aware, I'm sure, had much more severe issues.

And since we had exit debt yields that were fairly high and our loan to values were fairly low we were able to find additional sponsors with liquidity as it started to appear in -- with investors to work out these properties and to stabilize the loan and get the path forward to full stabilization and take out usually from government entities.

Your next question comes from Joe Yanchunis with Raymond James.

So I believe you mentioned earlier in the call that you were looking to add potentially 2 new partners to your credit sponsorship lending portfolio. Do you have a sense for kind of a year-end exit rate for the size of that portfolio? And should you need to rationalize other portfolios to make room? Can you talk about where you kind of start?

Yes. So we want to add at least 2 partners, at least 2 partners, and I think we've got good visibility on 2 partners. So we'll make announcements when appropriate. We're targeting -- and remember, the China program is growing pretty aggressively. So if you look at that level of growth. We haven't announced exactly where they're going to be. That's up to them. But with their growth and if you've seen the growth over time, we're -- it's going to be at least $2 billion, but it could be as high as 3, right? So it's -- it really depends on the on-ramp of new partners because we have great visibility on the time relationship. But I think we're going to -- we could easily be double where we are today at the end of '26. And that's probably a good -- when we look at it, double where we are today is probably a good estimate of where we're going to be.

And then also, should you need to make room on your balance sheet, what would you...

Yes. So we've already did some restructuring that we announced. So we have a very good idea of the economics of these businesses. So the first area where we reduced our participation was in our institutional business where we do nonpurpose securities loans. We also did loans for life insurance, the whole value and it's obviously liquid value of life insurance. And then we also did investor finance, which is really acquisitions in the RIA market. So we've stopped originating new loans in Block and also in that RIA acquisition business. So we think we have enough liquidity. We also have pools of capital in multiple areas where we can room.

For example, we have SBA guaranteed paper that we don't have to hold. And we'll just deemphasize we have very good understanding of the economics. So obviously, the lower spread will deemphasize first, and we already have -- we think we have enough room for '26 to do business, and it gives us plenty of runway. But ultimately, as credit sponsorship grows, we will continue to refine our businesses to distribute the loans. If you think about what we've -- the businesses we have, we either have a demand loan or in many cases, even in the real estate area, we -- and we've done this before, we've securitized the loans into CLO structures or conduit structures. So we have a very good visibility. We won't have a problem around getting the liquidity we need to invest in new loan areas. And the real trick of our balance sheet is velocity.

So as we continue to emphasized credit sponsorship, but also in the traditional businesses, we've set them up so that we can distribute them through usual market means.

Okay. And then last one for me here. So just kind of taking your prior answer of potentially doubling your credit sponsorship loans kind of winding down some of the lower-yielding portfolios. I was hoping you could kind of put all that in the blender as well as some of your other comments and help us think about the NIM a little bit more, which has been kind of volatile, jumping around a little bit.

Sure, Joe. This is Dominic. So there will continue to be some variability quarter-to-quarter in the net interest margin, particularly as deposits flow through and we optimize what's on and off balance sheet. And as Damian mentioned, what we want to do is maintain the flexibility of the balance sheet to maximize the leverage but also create room for the growth of the fintech business. So that mix that we'll see on balance sheet will affect the NIM. We do expect some compression of the NIM throughout the year, particularly as we shift more towards fintech and double that consumption on balance sheet, which generates more fee revenue and lower cost deposits than interest income. So that as that happens naturally, our profitability will increase, but net interest margin will come down a bit, but that will be replaced by a larger mix of fee revenue as a portion of total revenue. So I think we expect NIM to compress near 4% but as we grow fee income to be 35% of total revenue when excluding the credit enhancement.

Yes, you could always add back. We have a line that's very clear in our financials that basically is interest because that's the way we base it on. We get it in fees because that's the way we need to book it through the GAP system, but you can always add that number back and that will give you a better idea of what total NIM is -- now this is a non-GAAP measure but just to make that clear, but we get a fee, but that fee represents an interest rate that were agreed with our partner on and if you add that back, you get a better sense of the total NIM of the company, even though that is once again a non-GAAP measure.

There are no further questions at this time. I will now turn the call over to Damian for closing remarks.

Thank you, everyone, for joining us on the call today. Management will be attending investor conferences and meetings throughout the quarter and clean attending the KBW Winter Financial Services Conference in February, and we look forward to meeting with many of you. Have a great day. Operator, you may disconnect the call.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Good morning, ladies and gentlemen, and welcome to The Bancorp, Inc. Q3 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Friday, October 31, 2025. I would now like to turn the conference over to Andres Viroslav. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us today for The Bancorp's Third 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 the passcode of 37073.

Before I turn the call over to Damian, I would like to remind everyone that our comments and responses to your questions reflect management's view as of today, October 31, 2025. Yesterday, we issued our third 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 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. 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?

Thank you, Andres. Good morning, everyone. 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 continues to grow above trend at 16%. Revenue growth in the quarter, which includes both fee and related interest income revenue was 23%. Our 3 main fintech initiatives continue to make substantial progress.

First, our credit sponsorship balances ended at [ 785 ], up 15% from second quarter and 180% year-over-year. We are expecting increasing volumes with new product enhancements and increased utilization. Second, our embedded finance platform development has continued to progress with an expected launch next year. And third, new program implementation time lines, Cash App being the largest are on track with expected revenue in the first quarter of 2026. All 3 initiatives should have an increasingly positive effect on our financials as we move forward through '26 and into 2027.

We also made progress in reducing our criticized REBL assets, which include both substandard and special mention assets. These assets declined from $216 million to $185 million or 14% quarter-over-quarter. We expect more progress in the fourth quarter. Under our Project 7 initiative, which looks to achieve $7 earnings per share run rate by the fourth quarter of '26, we will be conducting a restructuring of our institutional banking business in the fourth quarter of '25. Headcount is being reduced by 30 as we deemphasize growth to reallocate space on our balance sheet for credit sponsorship balances. This will reduce run rate expenses by approximately $8 million while incurring approximately $1.3 million restructuring charge in the fourth quarter.

We also are implementing our first AI-powered use case. We have developed a new tool to reduce the writing of narratives in financial crimes risk management. For a $300,000 investment, we anticipate that we'll be able to avoid approximately $1.5 million in run rate expenses over time based on increasing volumes. This tool will be operational in the first quarter of '26. This is the first of many AI tools to come in the future. We expect to develop and implement these tools as quickly and as prudently as possible in areas that will lead to increasing efficiency and productivity of our people and platform. These tools should have an increasing positive impact on our already best-in-class profitability.

Lastly, we are lowering guidance to $5.10-ish a share for '25, primarily due to lower projected balances on our traditional lending businesses and an increased credit provision for leasing due to losses on the disposition of previously identified credits in trucking. In addition, we are not giving specific guidance in '26 other than we are targeting a minimum $7 earnings per share run rate by the end of '26. We are, however, initiating preliminary guidance for '27 of $8.25 earnings per share. As discussed, we believe that our 3 main fintech initiatives, platform efficiency and productivity gains from platform restructuring and AI tools, plus a high level of capital return through continued share buybacks will contribute to EPS accretion. EPS gains are subject to uncertainty, particularly as it relates to the development implementation time lines in fintech and our stock price for buybacks. I will now turn the call over to our Interim CFO, Marty Egan. Marty?

Thank you, Damian. Excluding consumer fintech loan credit enhancement income, noninterest income for the third quarter of 2025 was $40.6 million, which was 27% higher than the third quarter of 2024. Total fintech fees accounted for most of that increase. Prepaid, debit card, ACH and other payment fees increased 10% to $30.6 million over that period, and consumer credit fintech fees increased $2.9 million to $4.5 million. Additionally, in the third quarter, we reached an agreement on the earnest money deposit on the terminated sale of a property in other real estate.

The $2.3 million settlement amount is included in other income. The provision for credit losses on nonconsumer fintech loans was $5.8 million for the quarter, of which $4.8 million was related to the leasing portfolio. The leasing provision was driven by the third quarter net charge-offs of $2.8 million, primarily related to the trucking and transportation industry. Average fintech solutions deposits for the quarter increased 10% to $7.3 billion from $6.6 billion in the third quarter of 2024. Noninterest expense for the third quarter of 2025 was $56.4 million, which was 6% higher than third quarter of 2024. The increase included a 10% increase in salaries and benefits.

As Damian mentioned earlier, we made progress on reducing our substandard and special mention on REBL -- assets. We expect that trend to continue in the fourth quarter as $102 million of those loans are under contract and expected to close during the quarter, of which $12 million is already closed and $74 million is expected to close in the next 5 days. Additional details regarding our loan portfolios are included in the related tables in our press release as are the earnings contributions of our Payments business.

I will now turn the call back to Damian.

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

[Operator Instructions] Our first question comes from the line of Tim Switzer with KBW.

You guys doing well. First question I have is, can you guys provide an update on Square and the Cash App program, some of the other new programs you guys have going on. Is there a time line for when all the volume has transitioned over to you? And when should we start to see this ramp in GDV and the associated fees.

Yes. So it's on track and revenue is expected in Q1. We're not sure exactly the ramp-up schedule because it's really dependent on time lines at Block at Cash App. We do have confidence that as we work through the year, though, we will have substantial fee revenue generated by the third and fourth quarter of next year.

Okay. Okay. That's very helpful. And then can you provide an update on the $27 million REBL loan that was scheduled to sell, I think, in Q3 according to the 10-Q, and it just looks like it hasn't closed yet. I would just love an update on that.

Yes. So that $27 million is expected to close in the next 5 days. So it's either today or at the beginning of next week, and that's that substandard loan.

Okay. And it seems like there's just a lot of either momentum or activity in terms of closing new loan sales with some of the criticized assets. I guess, could you just provide an update on how discussions with borrowers and new sponsors are going? Do you expect more sales in the future. And any kind of color you can provide.

Yes, these things usually take longer. But if you're going to get all the value out of -- the last thing you need to do is panic when you have a little dislocation, which we didn't. And so we've just been working with the borrowers, some in deferrals, right? And so those deferrals are coming to an end, so we're getting resolutions. And the market has improved generally for these assets. And we've gotten much more clarity. So I think we're going to make really good progress in the fourth quarter and in the first quarter of this year. The fourth -- this fourth quarter has already been ring-fenced. It could be a little bit better or worse depending on what happens, but we're fairly confident of the 102 reduction.

Great. Good to hear. And the last question I have is deposits moved a little bit lower. I know you guys are trying to manage the balance sheet quite a bit. I would just love some color on that.

You mean the end-of-period deposits?

Correct. Correct.

So it's -- we get ups and downs in deposits depending on the program. There's a big seasonality part of it. We're looking at it now. There might be some portion of an impact on drawdowns because of the government shutdown. We're not sure. There's usually a lot of volatility, but we have a lot of primary liquidity. So we have -- we've taken deposits off the balance sheet. So we don't have any concerns. We expect the deposits to start to grow in the fourth quarter and then the first quarter is obviously tax season is where we as you -- if you look back at last year, you could see the dramatic difference as it ramped up in the fourth quarter.

And what's happened generally is that you get a ramp up in that fourth quarter. And over the last -- and traditionally, you go back 5, 6, 7 years ago, you'd get that big ramp down. What's happened now is that because we have our reg ii limit, it's more about managing deposits off the balance sheet. We have plenty of deposits. The question is how do we manage it through the cycle so that we don't have these big ups and downs. And so we've gotten much better at taking deposits off the balance sheet when we don't need them.

And your next question comes from the line of Joe Yanchunis with Raymond James.

So I was hoping I could just ask one more on credit. Can you provide an update on what's going on with the [ ARIA ], and potentially share any occupancy rates that are there and any conversations that you might be having?

Yes. So it's -- we're continuing to lease up the property. There's units available. We're finishing up on -- I think it's about 10% of the units that still need to be refurbished. We'll continue to lease it up. We have people looking at the property to do a transaction. I can't give you any assurances today when that will happen. But we think we'll, over the next 30 to 60 days, get more clarity on the property. There is definitely a market out there for the property.

The appraisal, if you recall, came in higher last time we reported in the second quarter earnings. So we feel comfortable. I mean it's in a very different state than it was when we had to take the property over, all the major construction, the roofs and the foundations have been done. So it's just a lease-up situation, and we do have available over 20 units available for rental. So I think we're in a fairly good position in the property.

Okay. I'm happy to hear that. Kind of moving over to your outlook. I was hoping you could talk about how much share repurchases are implied in your -- both your 2025 and 2027 guide. I know when you initially laid out your 2025 outlook, it includes some share repurchases. And I understand your 4Q '26 and '27 do include share repurchases. So if you could just kind of unpack that, I'd appreciate it.

Yes. So it's -- we've got a lot going on. So we have 3 big initiatives that we're not sure exactly of the timing, right? So we have the new programs, including Cash App. We have embedded finance, which we're launching, and we also have the leveraging up of the credit sponsorship business, right? And there's ambiguity around new partners, exactly when the revenue will be realized. And then we have the big share buybacks and what the stock price is.

So what we've done is kind of looked at both and modeled them out and saying, okay, what happens if we get the aggressive versus most likely versus downside case and then looked at the potential stock price with the multiple and said, okay, let's look at all these cases and run a bunch of scenarios and what do we feel comfortable with on both the -- both on the revenue side, but also on the buyback side and then also the expense side because we're implementing -- we have a whole game plan around AI now, which will have an impact on our ongoing cost structure.

So this is -- it's probably -- we don't want to put something out that because of the volatility of where we are right now. As we get better visibility as to -- as things play out in the beginning of next year, we could give you more guidance on it. But we didn't want to give guidance for the first couple of quarters. We feel very confident at this point that we expect that we'll get to the $7 run rate. And then if you play it out, that $8 in '25 is very doable and '27 because you have everything hitting at once. You have got all the revenue initiatives. You've got all the buybacks because we would continue to do the significant amount of our net income. And then you have the cost reduction at the same time.

So that -- we feel fairly confident regardless of the stock price of the buyback that we'd be able to hit it. But we can't give you the exact -- we kind of run it at a bunch of different prices. And then we look at the revenue expense side and try to triangulate on what best number to go out with.

Totally understand that you're juggling a lot of things right now. But just in relation to the share repurchases aspect of the guide, should 2027, should we think about the same amount of repurchases, $50 million a quarter, what you have in 2026. And then would that '25 new guide includes share repurchases. Just trying to think of where the jumping off point is as we enter next year.

Yes, yes, right? So it includes the buyback. And if -- obviously, a lower share price or we get better clarity exactly on the implementation time lines. We'll give that guidance to the market once we get clarity. We just know that under all the things that are going on, that $7 is very attainable to get to the run rate. And if we get to that run rate, then you have a whole bunch of things hitting in '27 because you've already ramped everything up. As for the tradition, which has not been approved by the Board, our tradition is that we're going to return depending on the multiple of the company, 100% of our net income in buybacks. At that point, it will be $300-plus million of net income. So that would be similar to the buyback that we did this year.

Okay. I appreciate that color. And then just kind of shifting focus here. In the quarter, we did see total fintech fees drop sequentially kind of driven by a decline in ACH fees. Can you discuss what occurred here and how we should think about the trend for this line item moving forward?

Yes, there's a lot of volatility. There's incentive fees. There's a whole bunch of things in there, and there's seasonality in there, too. So you're coming off the income period. But they're volatile. So I think you look year-over-year as the best metric to understand that and over a couple of quarters. So you look at the trend and you look year-over-year. So sometimes we do have a slight depression quarter-to-quarter, especially coming off the first to the second, but sometimes the second to the third, but then it starts ramping up again.

So I would encourage looking at it longer term and looking at it year-over-year. So we're definitely above -- remember, we have not implemented some of these things like embedded finance. We have not implemented Cash App yet. There's no volume there. Even on the volume that we currently have, we're above trend right now in GDV growth. So that's without the large addition of the next program. So I think you're going to still see the above trend, if not higher going into next year, and that will obviously drive fee growth as well as the adoption of more credit sponsor partners and also the launch of embedded finance.

You talked about these several initiatives which are going to drive growth, which aren't really hitting the numbers now. Is there any way to kind of rank order these opportunities in terms of potential magnitude?

Well, embedded finance is where the market...

Not just in '27, but over the next few years.

Yes. So the embedded finance opportunity is very large, right? So we haven't traditionally done any program management for our partners. And what embedded finance really does is package all the capabilities that we have today. We've talked about this whole layer cake of fee opportunities, and it delivers the entire menu to somebody who wants to embed it in their app, such as a gig economy company. And so that makes that -- we not only -- and because we have such scale and the other things, and obviously, we're profitable doing it, if you're able to deliver the program management element, and that's a big growing market, it's going to be in the future, it's a big opportunity.

If you recall, the program manager, you'd have to rebate this, obviously, to your partner, but that is the biggest part of where you get the fees, right? So that typically can be up to 80% of the interchange structure in the program management. That's where they get all their revenue from, right? So today, we're a few percent, maybe 4% at the max of those fees. So if you're able to layer on the program management element, you still obviously have to pay things like Visa, Mastercard and networks. But then there's a much richer fee environment, of which, of course, you'll share that with your partner, but that makes our platform much more profitable than it would have been if we just sold it piecemeal. Or for some partners like Chime, we sell all layers of the cake. But in certain cases, we only sell parts of that offer. But that's kind of packaging that entire offer and then it increases the fee environment for us to monetize the platform.

That was a very thorough answer. I appreciate that. And then last one for me here. Can you talk about the health of the consumer, particularly on the lower end. Obviously, you've discussed how GDV growth remains above trend. But I was just wondering if you're seeing any underlying trends within the data.

Not in spend, and it's hard to tell. We are -- we're seeing momentum in things like the short-term MyPay and InstaLoan world, right? So you're seeing some momentum, but we can't tell if that's just adoption or an economic reason. So we haven't seen the stress on the economy yet. So people are still spending. Remember, the vast majority of our program partners are -- we have corporate payments, that's not going to be -- insurance payments aren't going to really be affected. And then we're generally paycheck to paycheck in a lot of our universe. So people are still employed. They're still spending, and we haven't seen the stress yet.

Just kind of to piggyback off that, have you seen any increased demand or demand for -- in the early wage access from furloughed government workers? I know that's not the bread and butter of the programs that you offer, but just wondering if you've seen a pickup there.

Yes, we still have momentum in the balances in the -- but we can't tell generally if it's driven -- you would think that it was, but we can't be sure that it's -- you would think that it has to have some impact, right, just logically. But we can't tell if it's just more adoption of the product set through our partners' marketing. It hasn't -- let's say, it hasn't doubled, right? So it's not -- it's maybe a little elevated in the adoption level, but not enough to say that it's from a specific group other than just the normal business marketing. .

And your next question comes from the line of Arif Gangat with Cygnus Capital.

I have 2 questions. My first question is on the loan delinquency data in your press release. It looks like sequentially, the REBL loans past due doubled from June to September, ballpark $37 million to $74 million. So my first question is, what's driving that? And should we expect continued migration as we step through this quarter of more past due loans in the REBL portfolio. .

No. Some of that will be resolved in that $102 million that's under contract. So that's expected to improve in the quarter.

So we should expect when we see the same data for Q4, a lower past due line item for REBL loans.

Yes.

Okay. Great. And then the second question I had is on the consumer fintech loans. Could you help me understand, given the charge-offs in that portfolio, understanding that your partners indemnify you for losses. Help me understand kind of the high charge-off rates in those loans. What's the nature of those loans? Why are they charging off at such a high rate. And for your partners who are indemnifying you on those losses, what's in it for them? Like why are they continuing to suffer those types of losses in these consumer fintech loans?

Yes. So that's -- this is only -- all our consumer fintech loans are now Chime. We haven't added another partner as of yet. And it has been disclosed before, we have $1.8 billion that we have a limit on their use of our balance sheet. There's 5 different products. And they have their own for -- I won't speak for Chime, but they have their own. Obviously, they have plenty of -- you can look at their financials, they have plenty of wherewithal to sustain the losses. So they do it for various reasons. I don't want to speak for them.

But I believe it's a profitable activity even with the charge-offs, but there's other marketing reasons that they do the loans in order to make relationships more sticky and to add relationships. But I can't really speak to their strategy. And they -- all I could say is that if you look at their own -- what they say about their -- they're definitely in that business, and they have the ability to change the dynamics around how they lend, and that's up to them. We're just providing the infrastructure and the balance sheet at this time to the limit of 1.8, and they make the decisions ultimately about what losses they like to bear at what rate and then what -- is there a benefit to do that either financially or for marketing?

Got it. Just to follow up on that then in your conversations with Chime, are they concerned about consumer weakness, slowdown, particularly at the lower-end consumer, the same subprime-related problems we're seeing in other pockets of the market that would then potentially give them pause around lending to the same extent or tightening their underwriting criteria. And I'm really where I'm going with it is, if they do that, how does that impact your fee income and growth prospects in fintech.

Well, once again, that's their decision, and that's a question for Chime. I can't just -- I obviously can't disclose any conversations we've had. That's really a Chime question. We're here to support our partner. We have obviously an incredibly close strategic relationship. We've provided them with enablement for them to help their business plan, and then we've given them a limit of $1.8 billion. So they can change their view of how they want to build their business tomorrow. As -- and I'd ask you to look to their own announcements and stuff of what their intentions are.

And we do have a follow-up question coming from Tim Switzer with KBW.

Embedded finance is a pretty broad term that captures a lot of different products and activities. And I'm not looking for a specific partner or anything like that, but can you just provide some color on what you'll be doing next year as you launch that platform? And are you referring to launching a single program or just the platform broadly?

So we already have a workable mockup platform that's actually live, right? So we're in the development process. So we started on the track several years ago of -- Because it wasn't like we discovered -- a bunch of our partners had asked us if we had the capability to do this aspect. So -- and if we could help them build out a capability within their own user experience, right? So that's where the journey started. It became clear to us that the market wants a bank solution, right? They want the entire infrastructure. You're going to have third parties, but they want it to be a bank solution. And that's where there is a lot of demand, especially if you think about the types of companies that need this and where it's not their primary business model. It's mostly the gig economy, but it's not only that, right?

So that's where we're focused at first. But it's clear that embedded finance, if you look at any industry study, it's something that's sometimes mentioned as much as AI is. But it's something that's going to be broadly -- people want that financial services capability. So our journey is focused on the use cases that will kind of deliver our entire capability set. Most of that in the early days will be gig economy types of companies, but then there are many other use cases as those companies adopt this type of capability that we'll build on those capabilities and have a large potential market.

Now the market is obviously a very large market. And the revenue streams from this type of activity can be very large. I think we have the -- and they could be costly, right, for the provider. But because of the investments we've made in the key core capabilities that are needed such as financial crimes risk management, compliance risk management, we have -- we believe we have an economic advantage in delivering embedded finance to the marketplace over many of the competitors. And that will result in significant profitability enhancements for the Bancorp.

And that's part of the reason why as we build these new capabilities, we don't want to give -- and these are all kind of being done at the same time. There's obviously huge potential. And as we get clarity to the market and as we launch these things, we will tell the market. And the potential is large. However, it hasn't been proved out yet. We think these are all going to be within the next 12 months, very important part of our profitability story.

Got it. Very helpful. And then can you maybe help us think about -- I know the NIM is a really moving target here, but maybe the trend or trajectory of NII given the impact of Fed rate cuts going forward?

Yes. So we're very different than 4 years ago when we opened the balance sheet. We're very flat. So we're not very asset sensitive. If it goes -- if rates go down 400 basis points, it's only 3% of net interest income because of the way we've structured the balance sheet. So the question for us is when appropriate. And we've got such balance sheet flexibility. For example, obviously, we could have made up room on our net interest income deficit by just buying bonds, but we haven't because the flexibility in this kind of environment is at a premium. So we'll look at those opportunities. And we haven't gone down the credit curve because of price. So as you know, the spreads are very tight in the marketplace. .

So we don't feel -- with all the things that we're working on, we don't feel a need to go down the credit cycle, go down the price, go down in price or put on bonds just to make up for the lack of origination on the traditional credit. So that's our position. So we obviously had a little deficit in our net interest income versus what the expectations were, but we don't want to chase in this market or be forced into a position that many people have been enforced in the place of buy bonds just to supplement some of the net interest income.

Okay. Got it. That's really helpful. And then can you provide an update on how regulator expectations for BaaS partnerships are changing. And with the -- the administration has been here for 9 months now. Have you kind of seen an easing due to that? Like what areas have you found it easier to operate in. And has this allowed some of your peers, many who were forced to kind of pull back the last several years. Has that kind of allowed them to start to reenter and become more of a competitor again?

I don't think you're going to get any reentering. I think there's -- there was a -- obviously, a lot of people got into Banking as a Service. It's more than just the regulatory part of it. It's all the infrastructure and there's still -- what the regulators have basically said, there was -- I don't want to say overreach, but there was clearly some standards that were starting to be suggested that were not necessarily consistent with guidance. And what the regulators have said is, listen, we're going to use the guidance.

We're not going to try to create things that are out of guidance. And I think that's helpful to the entire industry, including us, because we're -- if you remember, we're kind of the highest volume, largest provider. So if they're going to set a standard, they're probably going to start with us. So if they're not going to set a new standard and they're going to managed to previous guidance, we're at previous guidance. So that helps us a lot in that we won't have to meet a new standard, but we'll have to hit the regulatory standard that we've met in the past. So we haven't seen it. We're focused on the largest programs in the implementation. We haven't seen any -- we're still saying -- seeing a lot of the business, we don't do it all, right? So we don't see a pipeline difference at all. And I think over time, it's good for everybody if they manage to -- it's the ambiguity around it. I think that's good for everybody that if the regulators focus on what they -- what the regulations are, that you can have a clean understanding of what their perspective is, right? And then you can meet that perspective.

People join us, it's not only because of the regulatory expertise which we have. It's all the other infrastructure. It's the look through the programs through our ability through financial crimes and our data management capability and all that -- and our fraud list and all that stuff. So it's -- that's the only one aspect of it.

Okay. And then it hasn't been asked yet. So I'll go ahead, but the commercial fleet leasing, there's a lot going on in that space with the freight recession. I know you typically lease the smaller fleets, you're probably struggling with that. There is also the government shutdown. You have, I think, some exposure to government agencies. What were the issues kind of facing these credits here? And is there continued pressure at all going forward? And I guess, could you just clarify, was this several borrowers, it sounds like?

Yes. So there are 3 borrowers. We don't have a large exposure. So you probably -- the transportation segment got hit hard because there was a bubble during the pandemic because everybody was delivering things. Nobody was going to stores, as you know. They closed all the small stores down. You could only go to Walmart, if you recall. But that ballooned the trucking industry. And so we never had a very large portfolio, and we only have 12 million left. So -- and we haven't done a credit in a couple of years. So this is a legacy disposition of assets where some people are -- it's gotten so bad that there's reports of people abandoning these trailers, not the truck, but the trailer part, people have actually abandoned them at truck stops. But we get the trucks back and then you go through a process of disposition and just aren't realizing these are depression of market -- even in our discounted view because we've usually taken gains on all of our transportation assets, vehicles and trucks. So it's just -- it's a whittle down portfolio. We only have a small exposure left, and it's all centered on losses on disposition of assets.

Got it. And the last question I have -- just an update on CFO search.

I can't give you anything today, but I think we'll be able to announce something soon.

And that concludes our question-and-answer session. I would like to turn it back to Damian Kozlowski for closing remarks.

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

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.