Good morning, ladies and gentlemen, and welcome to the Bancorp Inc. Q4 and Fiscal 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press the star 0 for the operator. This call is being recorded on Friday, January 31, 2025. I would now like to introduce your speaker for today, Andres Vyroslav. Please go ahead.

Thank you, Operator. Good morning, and thank you for joining us today for the Bancorp's fourth quarter in fiscal 2024 financial results conference call. On the call with me today are Damian Kozlowski, Chief Executive Officer, and Paul Frankel, our Chief Financial Officer. This morning's call is being webcast on our website at www.thebankcorp.com. There will be a replay of the call available via webcast on our website beginning at approximately 12 p.m. Eastern Time today. The dial-in for the replay is 1-888-660-6264 with a passcode of 18739. Before I turn the call over to Damian, I would like to remind everyone that our comments and responses to questions reflect managers' view as of today, January 31st, 2025. 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 risk 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 results of any revisions to forward-looking statements, which may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events. Now, I would like to turn the call over to the Bancorp's Chief Executive Officer, Damian Kozlowski. Damian?

Thank you, Andres. Good morning, everyone. the Bancor earned $1.429 for the year-over-year EPS increase for the quarter was 41% and 23% for the full year. EPS was driven by higher total revenue year-over-year of 8%, excluding $19.6 million of consumer fintech non-interest income correlated with related provision for credit losses. The increase in EPS was led by the growth of total fintech fees, 16% year-over-year growth in year-end deposits and a significant reduction of shares year-over-year of approximately 10 percent 24 buyback of 250 million fintech solutions continues to build volume volumes and is the major driver profitability growth from both fees and lower cost stable deposits for full year 24 gdb grew 15 percent or a significant acceleration with gdb growing 19 year-over-year total fee growth was 18% for the year from all fintech activities, which ballooned to 29% in the fourth quarter year-over-year, driven by credit sponsorship, and 78%, which includes rapid growth significantly, end of 25, with the addition of new partnerships. 91% and loan balances growing. Standard loans in our Rebel portfolio declined 14%, 3024% due to a loan portfolio sale, and the percentage further declined on January 2nd. this trend to continue with little to no loss. We continue to maintain significant coverage on these loans with low leverage and expect further broad-based and increasing growth in our fintech solution 25 a share. The guidance does not include 150 million of share buybacks for 25 or 37.5 million per quarter. Buybacks have been reduced 100 million in 25 from 24 to facilitate the repayment of 96 million of senior security on prevailing rates we may reissue 100 million or more of senior secure debt those proceeds would likely be used to call over to my colleague and cfo paul frankel paul thank you damien based upon applicable agreements related provisions resulted in the company recording a 19.6 million dollar provision for credit losses and 19.6 million dollars in

non-interest income resulting in no impact fourth quarter the company recognized a 1 million dollar recovery eight a meaningful footprint you're proceeding prudently in our fintech credit strategies and currently are generating balance majority of the increase in year-end loan balance the fourth quarter net interest margin of four point five five percent third quarter two thousand elected 1.3 million dollars of rebel loans included in an 82 million dollar year-end rebel bridge fintech solution group deposits for the quarter increased 16% to $6.99 billion from $6 billion in fourth quarter 2020. Fintech accounting offsets noted previous losses on loans was $2 million in Q4 2024 compared to $4.1 million in 2023 reflected $1 million resulted in CECL loss and qualitative percentages are applied. An additional $1 million resulted from increasing the CECL economic fact. The balance of the provision collected the impact of leasing-related charges, approximately 900,000 of which were inflected the impact of the trucking and related categories. Total principal exposure in those trucking was $32 million at December 31st. While the macroeconomic environment has challenged the multifamily bridge space, the stability of the Bancorp's rehabilitation, $1 billion apartment bridge lending portfolio of 70%. Outstanding modified consumer fintech accounting offsets noted previously, non-interest income for Q4 2024 was $34.7 million, which was 28% higher than Q4 2023. Prepaid debit card, ACH, and other payment fees for the majority of the increase those increases transfer income and debit program sponsorship income driven by both new client relationship and the continued organic growth of long the increase in non-interest income also reflected consumer fintech fees of three million dollars reflecting the company's third quarter 2024 previously noted we believe we will be able to origin non-interest expense for Q4 2024 was $51.8 million, which was 14% higher than Q4 2023. The increase included a 22% increase in compensation expense, including stock compensation. In summary, the Bancorp's balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches and related underwriting. Those loan niches have contributed to even during periods in which markets have LTV ratios and I block loans are respectively collateralized by marketable securities and the cash value of life insurance, while SBA loans are either SBA 7A loans that come with significant government guarantees or 504 loans that are made at 50 to 60 percent. Additional details regarding our loan, as are the earnings contribution, which first funding sources may present opportunities to further while still prudently maintaining capital levels. Such opportunities include stock repurchases, which are planned in 2025. To Damien. Thank you, Paul.

And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the store, followed by the number 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press the store too. Your first question comes from the line of Frank Chiraldi with Piper Sandler. Please go ahead.

Good morning. Just on the acceleration of GDV, Damian, and the quarter, I'm curious if you can, you know, what you're seeing so far in early 2025, thoughts on 2025 in terms of year-over-year growth in GDV. And then how do we think about pickup in terms of the fee income piece? I know, you know, obviously the consumer credit stuff is driving some decent fee income growth. But if I just think about if we just think about the deposit related kind of fees, what is the pickup for a, you know, a given 15 or 20 percent GDV growth?

Okay, so the first part of it, the GDV has continued to be accelerated. So in January, we're still seeing, so that is on GDV, and we just kicked at the end, but you saw it in the fourth quarter. So GDV is very strong, but as you know, rapid funds, we were an early adopter, and now we're expanding the new clients. And so it's kind of building a layer cake now. So you're getting kind of fees on top of fees from where we were in the fourth quarter. If you look over the year over year, a lot of that is run rate business. And then you're going to have the additional balances. Credit sponsorship could be over a billion dollars for this year. So at least in the high 20s, if you look at all the fees, at the ACH, termitive with GDV because the relationships have expanded so much and have additional fee sources. And they're kind of all fee structure. It's going to be at least in the high 20s if you include the credit sponsorship piece. Now you're in the high teens if you have the ACH and related fees and in GDV. I'm seeing this type of volume, the new larger program.

All right, great. That's That's great color. And then just on net interest income on the NIM, obviously you have the interest reversal in the quarter, but then you also have these significantly higher consumer balances that seem to be earning more on the fee side than maybe in terms of yield. So I'm just curious if you can talk through, is that kind of the name of the game? Can we continue to see maybe some margin compression and more pick up on fee income? Or what are your thoughts on margin in 2025?

So near term, we have, as you can see, we have a very strong growth. But in the near term, it's depending on implementation, lending programs and credit sponsorship primarily, because only fee-based, like, for example, the MyPay products, right? We do have additional liquidity because they're funded with a demand deposit, but the result for us is all fee-based, even though you kind of, on a fee, even though we're getting more profit substantially as the fee-based get implemented, and then the interest income, but the result, the fee that is really the payment, would be traditionally, it's not NIM, but it would be an economic benefit.

Sure. No, understood. And then just lastly, I noticed in the footnote in the release, you mentioned you had two smaller non-accruals after the quarter end of, I think, just under $10 million. I believe that's in the Rebel book. Can you just talk about those? Because I didn't see any increase in delinquency in the quarter? And also, just your confidence in criticized, classified. It sounds like you talked about it getting near peak or maybe peaking, and obviously you had the loan sales and balances were down. But just wondering your confidence going forward in those have reaching peak level. And do you need or expect to continue to have additional loan sales to kind of offset what otherwise would be inflows into those categories?

Yeah, so we think we're over the peak now, right? There might be a couple of modifications, a couple of substandard loans, but we can see a significant decrease over the next quarter, potentially, or two quarters. So we have the Aubrey sale, and we know where we are with all the, and we should show real good progress this quarter and going into the next quarter.

Yeah. And on the $10 million and other loan sales, reduce, reduce, even with that as with.

OK. OK. So so just on those two loans, I mean, at this point, I guess there's no additional color. They're in nautical. So we I guess we're assume, you know, well collateralized, but potentially.

We really can't. It's a developing thing. We'll fully disclose it when we can. And we think there will be no loss.

Okay. Thank you.

Thank you. And your next question comes from the line of Tim Switzer with KBW. Please go ahead.

Hey, good morning. Thank you for taking my question. And my first question is on, you know, some of the disclosures around the loan agreements with the consumer fintech loans where you're, I guess, being, you know, reimbursed for the credit provision. Can you give us some, you know, I know you can't go into like specific customers, but can you go into some details broadly about, you know, how those contracts are written? And, you know, like, do you get the collateral if they're not able to cover the losses? And do you provide, do they provide, you know, the cash for the losses up front before they occur or as they occur? Any details you can provide on that would be really helpful.

Yeah, so we do. We have an offset. So, you know, it's really bad on these types. These large clients, we're holding the entire, we get everything first. On additional, sorry, would be the interchange for these large programs. Plus, we have the backstop. Plus, we have, you know, they post-collateral.

And as far as you're looking at those agreements and a big number equal to that in the non-interest income. So, we're looking at those techniques, and we don't anticipate that it'll be an issue.

Just to be clear, so the collateral you have on your loans, you've received more than the $19.6 million you received. That's just when it gets recognized through the income statement. When exactly do you receive the collateral? And, like, you know, is it equivalent to, like, what you put up on the reserve side or is it a little bit higher?

You know, like, you could really get into the technicalities, like you're suggesting with T-accounts and when we get the money. The bottom line, as Damien had said, in these cases, like, the dollars are really there. So there's really no significant issues.

Yeah, remember, we're all compared to that. However, when it goes...

Okay, yeah, yeah. No, that helps a lot. And so is it fair to say you guys give up the interest income but still receive all the interchange for this arrangement?

It varies on each credit. And at this point with the mix, we're not certainly going to be, but as patient, ultimately we expect a fully secured free loan.

You know, the interest income is being generated, and make sure that we build it in the right way. So you'll see those balances, like you saw, and you'll see rapid fee-based, but in the future, interest income. Okay, got it.

And in the future, as you continue to diversify your products, do you plan for the loan agreements to include you being reimbursed for the credit losses, or are you going to, you know, do any kind of arrangement that makes economic sense for you guys?

Some will, right? So if they're kind of renting, it'll be fee-based in the future. But maybe 10% is profitable because you get much, much higher. They're very quick because the velocity on those loans are so – you get not only high interest rates, but you also get high fees, fee additionally. So those loans are incredibly profitable, and it makes your balance sheet much larger than it is. $2 billion of loans by the fees generated. Wow.

Yeah, it seems like a good product to get some strong risk adjusted returns here. If I can switch topics just a little bit here. The really strong deposit growth and influx of cash balances, was that related at all to the collateral you receive related to these loans? And then separately, do you plan to deploy that or move the balance sheet lower? Just looking for some color there. Thank you.

No, that's not really the driver. So the volume is the driver on that one.

The volume is the driver, the credit, and the growth.

But the GDV number is really like B2B payments and stuff that are growing very, and that bank is here temporarily. So, you know, it's really a volume. That GDV growth was 15.

I appreciate all the color, guys.

And your next question comes from the line of Joe Yonshan. It's with Raymond James. Please go ahead.

Good morning.

I'm doing well. I was hoping I could discuss the, you know, your credit enhanced program a bit more. Do you have any internal concentration limits on the size of the program?

And should we think about the bulk of the near-term ramp coming from new partners or from existing partners about the program? yeah so we do yes we do we haven't we have it depends on the types of products but when we redo this we will set a limit and we even though this is we'll we'll be ramping up other programs and if you recall apex 2030 we had a 3 billion dollar kind of it's very possible that 3 billion will be reached at the end of 26. work with us and build out these programs like like we said before you'll see that lower risk adoption, and then you'll see the diversification, securitization, and you also see five manner. If you think about it just conceptually, if we had $3 billion in a company would be this very...

God, I appreciate it. That was very helpful. And then just maybe you attack the collateral question for your credit enhanced program a different way. If you reach that billion-dollar balance at some point in the year, what would be the range of maybe associated deposits that would come with that that you would hold?

It's going to vary, but remember, it's rolling to the extent that there are either the bad loan or the non-paid loans.

And then just kind of switching gears here, can you discuss any themes or trends that have emerged from recent contract negotiations with your partners? or maybe on the debit side of your things like uh we're building out and the the disruption in

industry has so people long term and i think most of them have not to be a financial institution per se they are looking for them but then at the end of the day we're not the innovator we're the enabler which we obviously do you know and it's not even debit credit embedded finance it might to even be things like security. And so we're really along with it, have a dramatic, substantial growth. They get notification. We can make a lot of money well.

No, that was very thorough. And then last one for me here. What is the timing on the repayment of your sub debt that you called out? And then separately, is there any reason, you know, buyback activity wouldn't snap back in 2026, or are there any other capital deployment priorities?

No, unless there is some inorganic thing that we did, and we don't expect to do repatriation of when that was, and maybe SBA will allow us to continue in the NIM category, right? So we were building what we considered, bought a bond, and we locked in when we bought, not really going to affect us very much. It's very, until we get a lot of these, and now it's the whole story is the fintech story. It's going to be mostly the credit sponsorship.

Thank you. And there are no further questions at this time. I would like to turn it back to our CEO, Damian Kozlowski, for closing remarks.

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

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect. Have a lovely day.