Good morning, ladies and gentlemen, and welcome to the Bancorp Inc. Q3 2025 Earnings Conference Call. At this time, online turn 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 zero for the operator. This call is being recorded on Friday, October 31, 2025. I would now like to turn the conference over to Andres Bures-Love. Please go ahead.

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 p.m. Eastern Time today. The dial-in for the replay is 1-888-660-6264 with a passcode of 37073. Before I turn my call over to Damien, I would like to remind everyone that our comments and responses to questions reflects 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 Bancor 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 three 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 timelines, Cash App being the largest, are on track with expected revenue in the first quarter of 2026. All three 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 rebel assets, which include both substandard and special mention assets. These assets declined from 216 to 185 million, or 14 percent, 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 de-emphasize growth and re-allocate space in 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 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 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 earning per share run rate by the end of 26. We are, however, initiating preliminary guidance for 27 of 825 earnings per share. As discussed, we believe that our three main fintech initiatives, platform efficiency and productivity gains from platform restructuring 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 and implementation timelines in fintech and our stock price for buybacks. We'll now turn the call over to our interim CFO, Marty Egan. Thank you, Damien.

Excluding consumer fintech loan credit enhancement income, non-interest 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 salve of a property and other real estate. The $2.3 million settlement amount is included in other income. The provision for credit losses on non-consumer 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, also $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. Non-interest expense for the third quarter of 2025 was $56.4 million, which was 6% higher than the third quarter of 2024. The increase included a 10% increase in salaries and benefits. As Damien mentioned earlier, we've made progress on reducing our substandard and special mentioned red law 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 five 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 businesses.

I will now turn to call back to Damian. Thank you, Marty. Operator, could you please open the lines for questions?

Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press a star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your hands if people are pressing the keys. To withdraw your question, please press the star followed by the number two. With that, our first question comes from the line of Tim Spitzer with KBW. Please go ahead.

Good morning, Tim. Hey, good morning. Hope you guys are 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 timeline for when all the volume has transitioned over to you, and when should we start to see this ramp in GDP and the associated fees?

Yeah, 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 timelines at Block, at Cash App.

We do have confidence as we work through the year, though, we will have substantial fee revenue generated uh by the third and fourth quarter of next year okay okay that's that's very helpful and then um can you provide an update on the 27 million dollar rebel loan that was scheduled to sell i think in q3 according to the 10q and it just looks like it hasn't closed yet um would just love an update on that yeah so 20 that 27 is expected the close in the next five days so it's either today or the beginning of next week and that's that's some standard okay and it seems like there's just a lot of um either momentum or activity in terms of closing new loan sales with some of uh the criticized assets i guess could you just provide an update on you know how discussions with borrowers and new sponsors are going um you You know, do you expect more sales in the future?

Yeah, so these things usually take longer, but if you're going to get all the value out of, you know, 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, you know, 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. 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 good to hear and the last question i have is deposits needs a little bit lower um i know you guys are trying to manage the balance sheet quite a bit i would just love uh some color on that uh you mean the end of period uh deposits correct correct so it's uh you know we we get ups and downs in deposits depending on the program uh there's a big seasonality part of it um we're looking at it now there might be some of 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'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, if you look back in 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 five, six, seven years ago, you'd get that big ramp down. But what's happened now is that because we have our Reg I limit, it's more about managing deposits off the balance sheet. You know, 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 of taking deposits off the balance sheet when we don't need them.

Got it. Makes sense. Thanks, Damien.

Thank you. And your next question comes from the line of Joe Yanchunis with Raymond James. Please go ahead.

Good morning.

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

Yep. And so 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's 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 both your 2025 and 2027 guide. I know when you initially laid out your 2025 outlook, it included some share repurchases. And I understand your 4Q26 and 27, you know, do include share repurchases. So if you could just kind of unpack that, I'd appreciate it.

Yeah, so we've got a lot going on. So we have three 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, both on the revenue side, but also on the buyback side, and then also the expense side, because we're implementing, you know, we have a whole game plan around AI now, which will have an impact on our ongoing cost structure. So, you know, this is, it's probably a, 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, you know, 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, $8.25 is very doable, and 2070s, 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, you know, what you have in 2026? And then does 2025 new guide include share repurchases? Just trying to think of where the jumping off point is as we enter next year.

Yeah. Yes. Right. So it includes the buyback. And if, you know, we've had obviously a lower share price or we get better clarity exactly on the implementation timelines, 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 that seven dollars is very attainable to get to the run. Right. And if we get to that run, right, then you have a whole bunch of things hitting in twenty seven 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 and buybacks. At that point, it'll be $300-plus million of net income. So that would be, you know, similar to the buyback that we did this year.

Okay. I appreciate that, Keller. And then just kind of shifting focus here. you know in the quarter we did see total fintech fees drop sequentially kind of driven by a decline in ach fees you know can you discuss what occurred here and how we should think about you know the trend for this line item moving forward yeah there's a lot of volatility there's 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 the income period.

But, you know, they're volatile. So, you know, I think you look year over year is 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, you know, 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 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 know, so you talk 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 what are these opportunities, you know, in terms of potential magnitude? Well, embedded finance is where the market, not just to 27, but, you know, over the next few years.

Yeah. So the embedded finance opportunity is very large. Right. So we 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 – because we have such scale in 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 from me here. Can you talk about the health of the consumer, you know, particularly on the lower end? Obviously, you know, you've discussed how GDP growth remains above trends. I was just wondering if you're seeing any underlying trends within the data.

Not in spend, and it's hard to tell. We're seeing momentum in things like the short-term mic pay and insta-loan 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, you know, and we have corporate payments. That's not going to be affected. 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.

You know, just kind of to piggyback off that, Have you seen any increased demand or demand for an 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.

Yeah, we still have momentum in the balances, 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'd have to have some impact, right? just logically, but we can't tell if it's just more adoption of the product set through our partner's marketing. Let's say it hasn't doubled, right? So 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.

Okay. I appreciate you taking all my questions.

Thank you. And your next question comes from the line of Arib Gengat with Cygnus Capital. Please go ahead.

Hey, good morning. I have two questions. My first question is on the loan delinquency data in your press release. It looks like sequentially the rebel doubled. My first question is driving that and migration as we step through this quarter of more past due.

No, some of that will be resolved in that $102 million that's under contract. So that's expected to.

Yes.

And then the second question I had is on the consumer fintech loans. Let me understand, given the charge-offs, help me understand why are they charging off at such a high rate on those losses? Why are they continuing to suffer those types of losses in these?

Yeah, so that's – this is only – all our consumer fintech loans are now Chime, okay? We haven't added another partner as of yet. And as has been disclosed before, we have one point eight billion dollars that we've have a limit on on their use of our balance sheet. There's five different products and they have their own. I won't speak for time, but they have their own. Obviously, they're have plenty of you can look at their financials. They have plenty 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 all I can 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, you know, 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 and at what rate, and then 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, your weakness of the market, that would then pretend really where I'm going with how does that impact your fee income and growth?

Well, once again, that's their decision. and that's a question for Chime. 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. And I'd ask you to look to their own announcements and stuff of what their intentions are. Okay. Appreciate it.

All right. And we do have a follow-up question coming from Tim Switzer with KBW. Please go ahead.

Thanks, guys. 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 do you just provide some color on what you'll be doing um 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 you know mock-up platform that's actually live right so we're in the development process so um 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 know, 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 mention 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 will 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 can be costly, right, for the provider. But because of the investments we've made and the key core capabilities that are needed, such as financial crimes risk management, compliance risk management, 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, you know, 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 of the market, and as we launch these things, we'll 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.

And then can you maybe help us think about, you know, 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?

Yeah, so we're very, very different than four years ago when we opened the balance sheet. We're very flat, so we're not very asset sensitive. 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 forced in the place of buy bonds just to supplement some of net interest income okay guys that's really helpful and then um can you provide an update on how regulator expectations for bass partnerships are changing um and with the you know the administration's been here for nine months now um have you kind of seen an easing um due to that like what areas have you found it easier to operate in and has this allowed some of your peers, you know, many who were forced to kind of pull back the last several years, has that kind of allowed them to start to, you know, re-enter and become more of a competitor again?

I don't think you're going to get any re-entering. I think there's, you know, 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. There's still, what the regulators have basically said, There was I don't want to 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, you know, use the guidance. We're not going to 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 manage 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. You know, we're focused on the largest programs, the implementation. We haven't seen any. We're still saying, you know, 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've, what the regulations are, that you can have a clean understanding of what their perspective is, right? And then you can meet that perspective. You know, 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 what the only one aspect of it.

OK. And then it hasn't been asked. So go ahead. But the commercial fleet leasing, there's a lot going on in that space. The freight recession. I know you typically lease the smaller fleets. You are probably struggling with that. There's also the government shutdown. and 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 were three 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. And we haven't done credit in a couple of years. So this is a legacy disposition of assets where, you know, some people are it's gotten so bad that that there's reports of people abandoning trail 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 you go through a process of disposition they just aren't realizing these are the pressure of market prey even in our discounted view because we've usually taken gains on all of our uh transportation assets uh you know vehicles and trucks so it's just you know it's a whittled down portfolio. We only have a small exposure left, and it's all centered on losses and disposition of assets.

And the last question I have, thanks for taking all these. It's just an update on CFO search.

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

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.